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Earth & Politics | Yoon Hyo-Won Column | Saudi Arabia's De-Dollarization Decision and the Future of the Global Economy


2024-06-14 Yoon Hyo-Won

Yoon Hyo-Won Asia Labor Relations Consultant

Consultant for IndustriALL Global Union

Auditor at Korea Labor & Society Institute

Research Fellow at Korea University's Labor Issues Research Institute


Saudi Arabia Allows Oil Payments in Chinese Yuan

On June 5, Saudi Arabia announced its decision to sell oil to China in yuan instead of US dollars. This move is part of a political resolution to reduce dependency on the US dollar in international trade. As the world’s largest oil exporter, Saudi Arabia’s shift aims to strengthen economic ties with China and mitigate the impact of US sanctions, causing significant changes in geopolitical and geoeconomic landscapes.

Saudi Arabia has consistently worked to diversify its economic partnerships and trade practices. By using the yuan, Saudi Arabia enhances its ability to respond to dollar volatility and potential US sanctions. This strategy aligns with China’s national goal of internationalizing its currency and increasing its influence in the global financial market.

This de-dollarization step marks a pivotal point in the global trend of moving away from the dollar. It reflects the changing dynamics of global geopolitics and economics, where the US-centric unipolar system weakens, and a new order emerges, supported by the Global South and led by China and Russia.

Military Cooperation with Russia

Saudi Arabia’s de-dollarization efforts began in 2016. On April 25 of that year, Saudi Arabia announced its Vision 2030 plan to reduce the economy’s reliance on oil and diversify its industrial structure. This plan represents the first step towards de-dollarization.

Economic policy changes are always linked to shifts in political and military policies. On August 24, 2021, Saudi Arabia signed a military cooperation agreement with Russia, strengthening its ties as an alternative to US military support. In December of the same year, Saudi Arabia agreed with China to enhance energy and trade cooperation, beginning serious discussions on using yuan for oil transactions.

Currency Swap Agreement with China

On January 18, 2023, at the World Economic Forum in Davos, Saudi Arabia’s Finance Minister Mohammed Al-Jadaan stated that the country could use currencies other than the dollar for oil transactions. This broke the long-standing agreement with the US to link oil payments to the dollar. On April 21, 2023, Saudi Arabia signed a $7 billion currency swap agreement with China to promote the use of yuan and Saudi riyal in bilateral trade.

Saudi Arabia Joins BRICS

Two months later, in June, Saudi Arabia joined BRICS, formalizing the use of non-dollar currencies and actively participating in economic cooperation with BRICS countries.

In 2024, Saudi Arabia continues to pursue its de-dollarization strategy through economic and military cooperation with China and Russia. By joining BRICS, Saudi Arabia expands its de-dollarization efforts and seeks autonomy from the US-led trade order. This move aims to reduce dependency on the dollar in international trade and enhance economic autonomy in the global economy.

IMF and Increased Lending in Non-Dollar Currencies

Saudi Arabia’s de-dollarization affects the International Monetary Fund (IMF) and the World Bank, which have dominated international trade and finance since World War II. The IMF’s Special Drawing Rights (SDR) currently include the dollar, euro, yuan, yen, and pound. As de-dollarization progresses, the dollar’s share in the SDR basket is likely to decrease while the shares of other currencies increase. BRICS countries are pushing for the inclusion of new currencies in the SDR basket, challenging the dollar-centric system and promoting a multipolar global economy.

As de-dollarization continues, the IMF is expected to increase lending in non-dollar currencies, helping borrowing countries reduce their reliance on the dollar. The yuan's share in the IMF lending programs is particularly likely to rise.

World Bank and Diversified Funding for Developing Countries

The World Bank faces pressure to adapt. The use of non-dollar currencies in funding development projects is expected to increase, helping project countries reduce their dollar dependency. Diversifying currencies in development project funding is likely to enhance financial stability, especially for developing countries.

Transition to a Multipolar Global Economy

De-dollarization in international trade is expected to amplify China’s influence over the World Bank and elevate the voices of the Global South, previously marginalized in global supply chain benefits. This shift will promote a multipolar global economic order and necessitate the restructuring of the IMF and the World Bank. The recent agreement between Saudi Arabia and China to trade oil in yuan will be recorded as a historic turning point, marking the transition from a US-led unipolar system to a multipolar global economy.



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