Saudi Central Bank and People’s Bank of China (PBC) have inked a currency exchange agreement that is in the amount of 26 billion Saudi riyals, which works out to 6.99 billion Chinese yuan, in which the amount of trade amount is 26 billion Saudi riyals.
According to a statement issued by the PBC on Monday, the agreement will be in place for three years, and in the case of mutual agreement, it can be extended.
In the statement, the State Council has authorized the signing of the swap agreement that will enhance financial cooperation, increase the utilization of both currencies, and facilitate trade and investment between the two countries.
The exchange is predicted to serve as a model for other Middle Eastern nations to follow in the midst of the ongoing internationalisation of the yuan, which is caused by the ongoing internationalisation of the Chinese currency.
According to Xi Junyang, a professor at the Shanghai University of Finance and Economics, the deal marks a significant step towards the development of yuan usage in the Middle East and represents an opportunity to expand yuan usage in other regions, as reported by the Global Times on Monday.
According to Xi, Saudi Arabian companies may be able to use the yuan in more situations, with less constraints, than they might in the past, particularly in international trade and external economic cooperation, according to him. He added that the agreement may also simplify bilateral energy trading.
The Chinese Premier explained to the audience that Saudi Arabia, one of the world’s largest oil producers, often uses the dollar to conduct international commerce due to its large oil reserves. In some quarters, the use of the yuan might make bilateral crude exchanges more efficient, if the yuan is used correctly.
A report published by China Petrochem states that of the 508 million tonnes of crude oil that China purchased from Arab countries between 2022 and 2024, half of that amount came from Saudi Arabia, which ranked first in the nation.
Furthermore, the study stated that in recent years China has been receiving about 25% of Saudi Arabia’s crude oil exports as a result of the growth in the Chinese economy. Saudi Arabia’s crude oil is the world’s largest buyer of crude oil, followed by the United States.
In Xi’s opinion, there is a growing trend toward nations settling international trade agreements in their own currencies rather than relying solely on the US dollar to settle trade agreements. As he emphasized, Saudi Arabia’s pioneering manner of bringing the yuan to neighbouring nations may be essential in aiding the internationalization of the currency, as it will increase yuan usage among the neighboring nations.
Officials in China are working hard to promote the internationalization of the Chinese currency, the yuan. In an attempt to speed up the process of internationalizing the yuan, China’s central bank has announced its intention to gradually and prudently advance its internationalisation, setting goals for the opening up of the financial market. It is of paramount importance to note that the yuan is an easy-to-use medium of exchange thanks to its ease of use.
There will be a constant effort on the part of the PBC to leverage currency swaps effectively in order to facilitate trade and investment and help grow offshore yuan markets. Additionally, bilateral currency swaps with other central banks as well as local currency settlement cooperation will continue to be advanced steadily.
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