Professor Ashok Swain, head of the Department of Peace and Conflict Studies at Uppsala University, said Saudi Arabia’s possible entry into the BRICS economic bloc could accelerate the use of the yuan as a trade currency.
Professor predicts RMB appreciation
In a recent interview with Al-Monitor, Swain noted that there is no doubt that Saudi Arabia’s membership in the China-dominated Shanghai Cooperation Organization (SCO) and the BRICS, which includes Brazil, Russia and a few others, will Renminbi is the trading currency for bilateral trade.
Saudi Arabia became a dialogue partner of the SCO in March and expressed its intention to join the BRICS. In April, Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman Al Saud discussed a potential partnership between Russia and the BRICS. If the country joins the bloc, it could open up greater access to Asian markets for Saudi Arabia and strengthen its ties with the bloc’s countries.
The kingdom is also currently in talks with Beijing to denominate some of its oil sales to China in yuan. While discussions between the two countries over a yuan-denominated oil contract have been going on and off for six years, they have intensified this year. Swain pointed out that oil trade denominated in yuan is very beneficial to China and can help them against the dollar.
Saudi Arabia will benefit from moving away from the dollar
A growing number of countries are ditching the dollar for settlement of trade. China’s renminbi recently replaced the U.S. dollar as the most traded currency in Russia and the most commonly used currency for cross-border payment settlements in China.
Additionally, the BRICS grouping is working to create a new currency that would reduce its members’ reliance on the dollar. According to former White House economist Benn Steil, the BRICS currencies will reduce the dollar’s dominance.
Likewise, economist Stephen Roach predicts that the renminbi and the euro will break the hegemony of the dollar and the three will form a tripolar world of reserve currencies.
Saudi Arabia’s possible BRICS membership could open up opportunities for greater bilateral trade using the yuan, as well as cooperation with BRICS and the Shanghai Cooperation Organization.
It could also affect the pricing of oil in yuan, potentially undermining the dollar’s dominance in international trade. It remains to be seen what effect this shift will have on the global economic landscape as more and more countries move away from the dollar.
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