China and Saudi Arabia are strengthening trade and political ties. Mutually beneficial cooperation between the two states has blossomed in recent times. A royal purple-carpet welcome for Chinese President Xi Jinping's much-anticipated visit to Riyadh is direct evidence of deepening relations between the countries.
Earlier, Saudi Arabia was long seen as an ally of the United States in the Middle East. However, China managed to win the kingdom over. According to analysts, Saudi Crown Prince Mohammed bin Salman supports China's position on many issues.
One of the factors contributing to deepening ties between the two states is their efforts to abandon the US currency. Saudi Arabia and China have challenged the greenback's global dominance through the settlement of oil and gas transactions in yuan. Remarkably, the Saudis had traded oil exclusively in dollars since 1974. However, in November 2022, the countries signed a local currency swap agreement worth 50 billion yuan. According to the document, Saudi Arabia gained free access to a supply of Chinese currency at a set exchange rate, and vice versa for Beijing and the Saudi riyal.
This deal has been a significant turning point for both countries. According to experts, if they continue to settle oil and gas trades in yuan, the agreement will go beyond the Western financial system and help Saudi Arabia and China gain independence. This, in turn, will act as a signal to the world community that the Saudis are ready to use the yuan. Earlier, Russia, China's largest oil trading partner, did the same.
However, the situation is far from stable. The global financial world is in no hurry to abandon the use of dollars. In addition, the lion's share of public and private debt worldwide is denominated in the American currency. The greenback accounts for almost 50% of global payments, while the yuan makes up less than 4%. The US currency is freely convertible, which is not the case with the Chinese currency.
Nevertheless, the number of transactions with the Chinese yuan is on the rise. In September 2023, it overtook the euro to become the world's second most utilized currency in global trade.