Saudi Arabia Considers Global Trade in Non-Dollar Currencies
Saudi Arabia, the world’s largest crude oil exporter, is considering trading in currencies other than the U.S. dollar, a kingdom official revealed.
Mohammed Al-Jadaan (a Saudi minister of finances) told Bloomberg TV reported in Davos (Switzerland) on Jan. 17 that officials are openly considering other currencies, as the energy juggernaut strengthens relations with its strategic allies.
“There are no issues with discussing how we settle our trade arrangements, whether it is in the U.S. dollar, whether it is the euro, whether it is the Saudi riyal,” He said. “I don’t think we are waving away or ruling out any discussion that will help improve the trade around the world.”
He also noted that Riyadh continues to be a “very strategic relationship” With the United States, China and Europe “other countries who are willing and able to work with [Saudi Arabia].” Saudi minister said that the kingdom was partnering with multilateral organizations to support countries that it considers worthy of its support. “vulnerable,” Turkey, Pakistan, Egypt, and Pakistan. This includes increasing its foreign-currency reserve, extending deposits or grants, and providing oil as well as other petroleum products.
Since the 1970s, Saudi Arabia’s currency has been tied to the U.S. dollars. Over the past decades, the Kingdom has played an important role in maintaining the petrodollar system where crude oil exports are priced in the dollar. Today, more than 80 percent of international oil trades are conducted in dollars.
Foreign markets have been affected by the strong U.S. dollar over the past year. This is because stronger dollars make it more costly to buy dollar-denominated commodities. The U.S. Dollar Index (DXY), a measurement of the U.S. currency against a basket of currencies, surged last year, but it’s been on a decline since November 2022.
De-Dollarization in Oil Markets?
The Wall Street Journal, March 20, 2222 reported Riyadh was considering a plan to value its crude oil sales to Beijing using the Chinese Yuan. According to the newspaper’s report, the kingdom had grown increasingly frustrated with U.S. President Joe Biden’s administration and was now looking to shift its focus towards more accommodating Asian markets, including China.
China and Saudi Arabia reinforced their mutual commitment to stability in the global oil markets and increased bilateral economic and trading cooperation last month. Both sides agreed to increase crude oil trade.
“The People’s Republic of China welcomed the kingdom’s role as a supporter of the balance and stability in the world oil markets, and as a reliable major exporter of crude oil to China,” The joint statement reads.
Chinese leader Xi Jinping told Gulf Arab leaders that his government would attempt to purchase oil and gas in yuan, which would support Beijing’s broader efforts to boost the currency in cross-border transactions and weaken U.S. dollar hegemony. With more oil-rich states turning to China, there’s been an abundance of speculation that there could be a rise of a so-called petroyuan.
Ray Dalio is the founder of Bridgewater Associates and warned that the world economy is at the edge of a new era. telling Nikkei Asia, the days of globalization are over “dollar-dominated world order” Are “fading away.”
“We are now going to have the major powers and their allies form economic, currency, and military blocs,” He said.
During the 14th BRICS summit in June 2022, it was announced that the five member economies—Brazil, Russia, India, China, and South Africa (BRICS)—plan to introduce a “new global reserve currency.”
“The matter of creating the international reserve currency based on the basket of currencies of our countries is under review,” Russian President Vladimir Putin stated in a statement. “We are ready to openly work with all fair partners.”
Market experts believe the system would consist of a basket-based reserve money made up of the South African rand (brazilian real), Russian rouble and Indian rupee. The objective is to ostensibly undermine the supremacy of the U.S. dollar and the International Monetary Fund’s (IMF’s) Special Drawing Rights, according to Chris Turner, global head of markets and regional head of research for the UK and Central and Eastern Europe at ING.
“One can only think this is a move to address the perceived U.S.-hegemony of the IMF and will allow BRICS to build their own sphere of influence and unit of currency within that sphere,” Turner wrote in note.
“Without discussing the likelihood of such a proposal turning into something tangible, Russia may have a strong motivation to participate or initiate in an IMF-like scheme in order to address the mounting pressure on its capital account.”
The global campaign to dismantle the dollar’s influence in international markets may not transform the global economy anytime soon—or at all—but some financial analysts contend that it’s unfolding now in the global oil industry.
“We are witnessing the birth of Bretton Woods III—a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the eurodollar system and also contribute to inflationary forces in the West,” Zoltan Pzsar is the Credit Suisse global head for short-term interest rates strategy. He is also a former Federal Reserve official and U.S. Treasury Department official. wrote Note.
West Texas Intermediate crude oil futures increased by approximately 0.9 percent to just under $81 on January 17th on the New York Mercantile Exchange. Brent crude prices topped $86 per barrel on London’s ICE Futures exchange.
Andrew Moran has been writing for over a decade about finance, economics and business. He is also the author of “The War on Cash.”
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