Commenting on the entry into BRICS of Saudi Arabia, an editorial by Al-Monitor, authored by its foreign affairs correspondent Sabena Siddiqui, argues that concerns about the U.S. dollar’s dominance are not justified.
Oil transactions between China and the Gulf may be settled in Chinese currency, but experts do not foresee an end to the dollar’s dominance soon.
Ever since the news last month that Riyadh is considering accepting yuan as a currency to price some oil sales to China, the perception that Saudi Arabia’s participation in BRICS would be a gamechanger for the existing economic system has received fresh impetus.
Ashok Swain, a professor of peace and conflict research at Uppsala University in Sweden, told Al Monitor that oil trade in yuan — also known as renminbi — will be a “huge step” for China. It would also “be a significant setback to the dollar’s standing,” he noted. “There is no doubt that Saudi Arabia becoming a member of China-dominated SCO and BRICS+ would accelerate the bilateral trading being conducted using the yuan as the trading currency.”
As Saudi Arabia eyes entry into BRICS, there are fears that the kingdom’s vast oil reserves alongside China’s economic power could be a blow to the US dollar. @sabena_siddiqi argues why those concerns may be overblown. https://t.co/4nU333Am6x
— Al-Monitor (@AlMonitor) April 29, 2023
Notwithstanding these expectations, the Chinese yuan/renminbi remains a relatively smaller global currency player.
Torek Farhadi, a financial analyst based in Geneva, told Al Monitor, “The yuan trend is not a major risk to the US dollar. Roughly, 58% of global trade is still in US dollars, albeit it has come down from above 75% over the last 15 years, but that is mostly due to increase in trade in euro.”
In practice, 95% of world dollar payments are made using SWIFT (the Society for Worldwide Interbank Financial Telecommunications) and around 11,000 member institutions in 200 nations and territories, carry out nearly 42 million transactions per day, with the average daily amounts being almost $5 trillion.
Meanwhile, the yuan remains pegged to the dollar so that it does not float, or get exposed to market forces. Chinese monetary authorities adjust the currency value to benefit Beijing’s exports. Also, the Chinese capital account remains closed, and capital cannot flow out without approval.”