De-dollarization Accelerates Between Saudi Arabia and China

The twilight of the petrodollar is no longer a mirage. China and Saudi Arabia are rapidly decoupling their trade from the dollar. When will the petro-bitcoin emerge?

Petro-yuan

The currency swap concluded by the Saudi and Chinese central banks reflects a significant tightening of trade relations.

China is Saudi Arabia’s largest trading partner, dominating both exports and imports.

In September, the kingdom saw its exports to China increase by 34 % compared to August. China’s share of Saudi exports rose from 14% in August to 18% in September.

The trade surplus with China soared to 6.7 billion riyals ($1.8 billion). That’s a 257% increase from August.

Very bad news for the petrodollar. This massive surplus strongly suggests that the Middle Kingdom is paying an increasingly large portion of Saudi oil in yuan.

The currency swap worth 50 billion yuan clearly indicates this direction. It is a key initiative aimed at strengthening the use of national currencies and reinforcing trade ties.

For example, the national oil company Aramco revealed early in the year several billion-dollar investments in Chinese oil refineries. This is tangible proof that Saudi Arabia intends to consolidate its position as the top supplier of crude oil to the country.

The fact that the Saudis are considering purchasing Chinese air defense systems and drones is another strong sign of this geopolitical and monetary earthquake.

As anticipated, the internationalization of the yuan has been accelerating since Xi Jinping’s visit to Saudi Arabia in December 2022. The Chinese president had then argued in favor of trading oil in yuan, rather than dollars.

It is no coincidence that the Saudi central bank has drastically reduced its investment in the US public debt.

However, China is not accustomed to selling its debt to the rest of the world. The question then becomes: what to do with these yuans in the event of a significant surplus?

Exchange them for gold, maybe? Indeed, let’s remember that China launched its own crude oil benchmark index in 2018. It is denominated in yuan and convertible into gold. You read that right, China has been reviving the gold standard for several years now.

Knowing that what is good for gold is also good for bitcoin. Much rarer and more practical than the barbarous relic, digital gold will eventually eclipse it as a universal store of value.