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The planned visit of the Chinese President to Saudi Arabia next week is likely to have a significant impact on the yuan (CNY) and its extended digital version, e-CNY. At Saudi Arabia’s invitation, Xi Jinping’s proposed trip next week has been dubbed an opportunity for Beijing and Riyadh to consolidate ties and reinforce the image of China as an ally of Saudi Arabia – as there is a drift away from Washington.
To seal CNY’s use for Saudi oil
As his first foreign visit since the start of the Covid-19 pandemic, there are suggestions that the Chinese premiere’s visit could seal the arrangement for Saudi oil to be made tradeable in CNY. Saudi Arabia has been talking with China on pricing oil in CNY for six years. The recent global economic condition has seen the negotiations move faster this year. In March, Dow Jones reported that Saudi Arabia is weighing the option to accept CNY for oil sales to China.
Considering that China buys about 25% of its oil from Saudi Arabia, settlement in CNY would be a good option for the Asian giant. Also, the Russia-Ukraine war and the sanctions imposed on Russia as a result, have made holding the U.S. dollar become an issue for some nations which have been looking for alternatives, according to Bloomberg. A local report suggest that the e-CNY stands to benefit from increased use of the CNY for payment.
A time to discuss BRICS, SCO membership
While China and Saudi Arabia have been growing closer for over two decades, the meeting could also be a ground to treat Saudi Arabia’s applications to join BRICS and the Shanghai Cooperation Organisation (SCO). The President of BRICS International Forum, Purnima Anand, last month revealed that Saudi Arabia, Turkey, and Egypt plan to approach BRICS about official membership. Argentina and Iran had reportedly begun the preparatory process for joining the bloc.
BRICS was established in 2006 as a heterogeneous organization that now has five major emerging economies: Brazil, Russia, India, China, and South Africa. The five countries have a population covering half of the world. Their combined gross domestic product is equivalent to that of the US ($13.6 trillion) while their total foreign exchange reserves are $4 trillion. Saudi Arabia, like Turkey, and Egypt, have been actively seeking alternative partners and looking toward China, Russia, and India in a shift in relations with Washington.
Saudi Arabia is also an upcoming dialogue partner of the SCO, a group of eight Eurasian states covering 40% of the world population, and more than 30% of global GDP. The expansion of BRICS and SCO unquestionably increases China’s sphere of influence. It adds to its Belt and Road Initiative which has been linked to the e-CNY’s digital currency/electronic payment project and used for cross-border applications.
To push against US dollar hegemony
BRICS is also considering having a reserve currency. Russian president, Vladimir Putin, announced the bloc’s plan to issue a “new global reserve currency” at the 14th BRICS Summit. Also speaking at this year’s St. Petersburg International Economic Forum, Putin said the U.S. has been ruling the world’s financial system for years but “Nothing lasts forever.” Saudi Arabia’s proposed oil sale and blocs’ membership facilitation would add to making the necessity for the reserve currency more clearer as the patterns of currency multipolarity take new forms and digital infrastructure complement physical logistics in support of high speed financial flows.
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