A local currency exchange agreement has been inked by the Saudi Central Bank and the People’s Bank of China (PBC) in which the amount of the trade is 26 billion Saudi riyals, or 50 billion yuan ($6.98 billion). 

The PBC said in a statement on Monday that it will be effective for three years and that it can be extended by mutual consent.

According to the statement, the swap agreement, which has been authorised by the State Council, would enhance financial cooperation, increase the usage of both currencies and facilitate commerce and investment.

Experts predicted that in the midst of the yuan’s ongoing internationalisation, the exchange will serve as a model for other Middle Eastern nations and inspire them to follow suit.

According to Shanghai University of Finance and Economics professor Xi Junyang, the deal is a significant step towards advancing yuan usage in the Middle East and presents a chance to expand yuan use worldwide, as reported by the Global Times on Monday.

In particular, for international commerce and external economic cooperation, Saudi Arabian enterprises may utilise the yuan in more situations with less constraints, according to Xi, who also said that the agreement might make bilateral energy trading easier.

For example, Xi said that Saudi Arabia, one of the world’s biggest producers of crude oil, often uses the US dollar for its international commerce. The usage of the yuan, according to some, may improve bilateral crude exchanges.

China Petrochem reports that of the 508 million tonnes of crude oil bought by China in 2022, half came from Arab nations, with Saudi Arabia coming in first.

The study also stated that China has been receiving around 25% of Saudi Arabia’s crude oil exports in recent years. The biggest buyer of Saudi Arabian crude oil is China.

According to Xi, an increasing number of nations are choosing to settle international trade agreements in their own currencies rather than relying on the US dollar. He pointed out that Saudi Arabia’s trailblazing action may be crucial in increasing the yuan’s usage among neighbouring nations, which will help the currency’s internationalisation.

Chinese officials are working to encourage the internationalisation of the yuan. Earlier this month, China’s central bank pledged to gradually and prudently advance the yuan’s internationalisation, setting goals for the financial market’s opening up. An essential feature is the ease with which the yuan may be used as a medium of exchange.

According to the PBC, constant efforts will be made to effectively leverage currency swaps to support the growth of the offshore yuan market and ease trade and investment, as well as to steadily advance bilateral currency swaps and local currency settlement cooperation with other central banks.