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The Chinese currency is moving to capture some of the oil deals with oil-producing countries, as well as other forms of energy including gas and other trades. It is still too early, but it seems the time has come; considering the positive signs towards achieving the objective — capturing some deals no matter how small is the world trade volume. Today, the yuan is ranked below the four major currencies in the world. After the US Dollar and the Japanese Yen, the Yuan is ranked fourth globally.
In 2016, the World Bank approved the Chinese currency as part of the international reserved currency, along with the major currency. Given the momentum, it is encouraging as it is opening doors for countries under the heavy burden of the US currency like Argentina to trade in Yuan. It is freeing itself from the burden of increasing the US Dollar reserve and switching to another currency. It seems that other countries will follow suit like Brazil and Turkey.
Oil-producing countries, especially the Gulf states, are the attractions for China. Soon, these countries would have to switch to another currency and use the Yuan to deal with the second largest economy in the world. As the second largest consumer of oil with 16 million barrels of consumption, it is so attractive for Saudi Arabia and Russia, making a fierce competition between them with 17 and 18 percent respective share of the oil market in China. Without hesitation, Saudi Aramco is bound to move ahead with overall energy investments. It is the future consumer in every sector. Perhaps, it will exceed the joint venture of major US oil companies in Saudi Aramco; with China gearing toward offshore relationship, while keeping politics out of the picture.
Definitely, it will take a long time for the Yuan to be freely tradable and acceptable. It depends on China in terms of freeing its currency, without any government interference. For the time being, the main four major currencies are traded freely, considering their availability in any consuming country in the world of major economies. We cannot say the same for the Yuan, which will take hard work to be accepted and available in the markets. Maybe, the volume is not yet enough for the currency to be exchanged and traded, and to ensure stable exchange rate — another timeconsuming mission. At present, the Hong Kong Dollar is the currency used in trading in China’s stock markets; thereby, gaining global confidence. It is interesting to note that oil exporting countries are not yet ready to switch to another currency as their total income are in US Dollar.
In addition, most of their sovereign wealth is invested in the USA and smaller portions are distributed to other matured markets. There is some movement towards China and Kuwait is one of the Gulf countries that succeeded in investing in Chinese stock markets. The Chinese currency has three percent share of global payments, which is nothing compared to the four major international currencies – US Dollar, Euro, Sterling Pound and Yen. Perhaps, the Gulf oil exports to China should be the core of attention. The recent agreement with Saudi Arabia is an example of what the future holds. The gas agreements with Qatar and Abu Dhabi reflect future intentions as well, while Venezuela is selling some of its oil products in Yuan through long-term arrangements. Therefore, the list of those trading or paying in Chinese currency is getting longer.
By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]