- BRICS is considering using the Chinese yuan for oil payments to reduce reliance on the U.S. dollar.
- Saudi Arabia is open to trading oil in yuan, though it prioritizes keeping politics out of commerce.
The BRICS alliance, comprising Brazil, Russia, India, China, and South Africa, is reportedly exploring the potential introduction of a “petroyuan” to rival the dollar’s dominance in the global oil trade. This is expected to be taken up at the next BRICS summit in Kazan, Russia, to establish an alternative to oil payments in dollars using the yuan. This comes after the biggest oil exporting nation in the world, Saudi Arabia, showed interest in pricing oil in yuan, which is a major blow to the petrodollar system.
Traditionally, the country has sold its oil in US dollars but has expressed interest in diversifying its trade basket per current international financial practices. Russia is also interested in the petroyuan, as Moscow aims to decrease the use of the US dollar and facilitate transactions through SWIFT.
Following its exclusion from SWIFT in 2022 due to the conflict in Ukraine, Russia has been exploring alternative methods for international financial transactions.
OMFIF Report Highlights Petroyuan Adoption Challenges
While the idea of a petroyuan presents opportunities for the BRICS nations, challenges remain. A recent report from the Official Monetary and Financial Institutions Forum (OMFIF) identified several challenges many countries may face when adopting a yuan-based oil payment system.
A limitation is that surpluses from oil revenues can only be used to purchase goods from China or stored in foreign currencies. This means that BRICS financial intermediaries would be forced to transfer the yuan to other countries in need.
Chinese banks stand to benefit most from this system, earning profits by managing these surpluses. Other Western financial institutions may also participate, given the possibility of making profits from differences between oil prices in dollars and yuan. However, adopting the petroyuan can further hinder the development of the global payment system.
However, Saudi officials have stated that politics will have no role. Bandar Al-khorayef, Saudi Arabia’s minister of industry and mineral resources, pointed out that while the country is willing to consider the use of new instruments in trade, such as the petroyuan, it will not mix politics with business. The BRICS nations are also considering the creation of their own currency for trade within the alliance, with some reports suggesting it may be backed by gold.
IMF Analysis Reveals BRICS Outperforms G7
As highlighted by Crypto News Flash, President Putin recently spoke about the creation of the BRICS pay, a blockchain-based payment system. The system is intended to support foreign trade operations and transactions not involving Western financial systems.
Crypto News Flash recently reported that, based on the IMF’s analysis, BRICS has outperformed the G7 in several key metrics. Notably, BRICS has emerged as the leading producer of oil imports.
The group accounts for 41% of the world’s oil production, a figure higher than the G7’s 29%. Also, BRICS has the largest population share in the global population, accounting for 45% of the global population, while the G7 countries account for only 30% of the global population. Moreover, the BRICS countries have now reported 32% of the world GDP while the G7 has reported 29%, which shows the growth of developing countries.
