In light of the East axis, led by China and Russia, striving to eliminate the dominance of the dollar in international financial transactions and their intention to weaken it from time to time, gold will be a decisive factor for China in this regard, as it looks to enhance the international credibility of the yuan to continue its plans to buy oil in its currency from Saudi Arabia. , according to a market analyst.
The yuan is an alternative to the dollar.. Saudi Arabia is the password
In early December, during a visit to Saudi Arabia, Chinese President Xi Jinping called on the leaders of the world’s largest oil exporter to accept the yuan in exchange for oil as the two countries look to strengthen their geopolitical ties.
Saudi Crown Prince Mohammed bin Salman declared the talks “a new historic stage in relations with China.”
In his latest report, BNP Paribas market analyst Qi Lu said that if Saudi Arabia starts trading oil in yuan, it will create more momentum for the Chinese currency, bringing it one step closer to reaching dominance internationally.
“Gold is a key factor in the further development of the petroyuan system,” Qi Lu said in the report. “Oil and the gold-backed yuan do not require the yuan to be fully convertible to work, so it allows China to simultaneously retain control of its own capital account and promote the internationalization of the yuan.”
Qi added that subsidizing the yuan’s oil trade with gold would be helpful in building the petro-yuan system.
“Making the yuan convertible into gold effectively turns the currency into a global, investable asset for foreign yuan holders, boosting their confidence and demand for the Chinese currency,” he said.
The comments come as China announced it had bought another 30 tonnes of gold in December. This follows the purchase of 32 tons of gold in November, the first officially recorded purchase since September 2019.
The total gold reserves in China are now 2010 tons.
Weakening the control of the dollar
The French bank analyst said that China is already making strategic progress in global currency markets as it looks to weaken the hold of the US dollar as the world’s reserve currency.
Qi pointed out that due to Western economic sanctions, led by the United States, Russia has adopted China’s cross-border interbank payment system for its oil trades, bypassing the global payment system “Swift” which is dominated by the US dollar.
He also confirmed that countries such as Iran, Venezuela and Indonesia are currently settling some of their oil trade in yuan.
“The volume of trade, and the scope of the yuan’s use for international payments, could grow as more countries diversified from US dollar risk. This development could challenge the US dollar-based global financial system over time as the dollar’s global reserve currency status depends largely on its importance in the US dollar markets. energy and commodities.
However, China still has a long way to go in competing with the US dollar. Qi noted that even if Saudi Arabia started accepting yuan for oil — which would move into a trillion-dollar market dominated by the United States — global payments settled in yuan would amount to about 3% of the total market, putting it right in front.