Saudi Arabia, the world's largest oil producer, released forecasts on May 1 saying the country's gross domestic product (GDP) grew 9.6 percent year-on-year in the first quarter, the highest level since the third quarter of 2011. Notably, the country's non-oil GDP grew by only 3.7 percent, while oil GDP grew by a full 20.4 percent. This is also a footnote to the high oil prices in the context of the Russian-Ukrainian conflict and the rise in global oil prices. The IMF predicts that the Saudi economy will grow by 7.6 percent this year, reaching $1 trillion for the first time. At the same time, the BWC Chinese network financial team noted that Saudi Arabia, as the dominant country of petrodollars, has officially begun the process of de-dollarization.
According to the latest edition of the U.S. Treasury Department's latest international capital flows report, TIC, released in April, the data was delayed by two months, and Saudi Arabia reduced its holdings of $2.7 billion in U.S. Treasuries in February and currently holds $116.7 billion. For a longer period of time, since February last year, Saudi Arabia has begun to reduce its holdings of US debt by a total of US$16.2 billion from the previous US$132.9 billion, with a total reduction of more than 12%. The signal that Saudi Arabia has once again reduced its holdings of US bonds cannot be underestimated the impact on oil-dollar-US bonds.
Since the 1970s, after the separation of the dollar and gold, it is based on the agreement between Saudi Arabia and the United States to settle oil in dollars that has made the dollar the anchor of the global commodity settlement currency. The agreement stipulates that Saudi Arabia sells oil for a dollar-denominated price and uses oil revenues to buy U.S. bonds and securities assets. This is one of the reasons why the dollar maintains its reserve status. Therefore, when Saudi Arabia also began to divest us debt sharply, the decline in the attractiveness of US debt and the US dollar was inevitable.
Not only that, brent crude prices have risen 38 percent this year to $107 a barrel after rising 50 percent last year, which is one of the reasons for high inflation in the U.S. (the U.S. consumer price index CPI rose 8.5 percent year-on-year in March, a 41-year high). Although the United States has repeatedly pressured the Saudi-led OPEC (Organization of the Petroleum Exporting Countries) to increase production sharply, Saudi Arabia has refused and still increased production slightly according to its own strategy.
Even earlier, the U.S. Congress has begun to launch a legislative action called N-OPEC around OPEC's monopoly position in the international crude oil market, trying to make OPEC lose control of crude oil pricing power. However, Saudi Arabia once announced that it would or will terminate the petrodollar agreement, and if the United States passes "NOPEC", it will sell oil in currencies other than the US dollar, which they say is their core option. It also suggests that the Saudi economy seems to be increasingly disobedient to the dollar system. In the field of non-DOLLAR currencies, Saudi Arabia and another oil country, the United Arab Emirates, have also tried to develop and use digital currencies to trade in bilateral economic cooperation to circumvent the dollar.
In addition, US media reported three weeks ago that Saudi Arabia is also considering settling in renminbi in some oil trade. According to the analysis of Nikkei Asia Review, asia is best traded in yuan and yen. According to the 2021 World Energy Blue Book jointly released by the Chinese Academy of Social Sciences and other institutions, RMB crude oil futures are more likely to become the benchmark for crude oil pricing in Asia, and the current function of a RMB crude oil pricing market that radiates the Asia-Pacific region has emerged.
Some analysts believe that if Saudi Arabia, as the leader of OPEC, chooses to settle oil in a non-DOLLAR currency, then other oil countries may follow suit. Prior to this, before the dollar opened financial restrictions on the oil country of Iran, Iran officially announced that it would list the renminbi as a major foreign exchange currency to replace the foreign exchange function of the dollar. According to Reuters earlier, an Asian oil buyer signed the first yuan-denominated purchase agreement for Middle Eastern crude oil a few weeks ago, and plans to sign more such agreements later. In other words, there are already oil buyers who intend to trade more international crude oil in rmb. In addition, crude oil exporters in Venezuela, Angola and other countries are constantly trying to trade international crude oil in the renminbi.
In response, former Bank of England Governor Mark A. Carney said a few weeks ago that I think we might end up having a reserve currency other than the dollar. Half of international trade is currently denominated in dollars, but with the shift in economy and trade, currency settlement will also change. I expect these to be existing currencies, such as the renminbi. Among them, crude oil RMB futures provide a new direction for commodity trading.
As for crude oil yuan futures, since the beginning of international trading in 2018, it has become one of the world's top three crude oil futures parallel to Brent crude oil and AMERICAN WTI crude oil. At present, 68 international brokerage companies have launched RMB crude oil trading services. Reuters reported a few weeks ago that U.S. traders began frequently pegging to the night market of yuan crude oil futures, and as the number of trades increased, the dollar's single oil pricing power is also weakening. This means that oil yuan futures have done what currencies, including the ruble and Saudi rials, as well as the UAE dirham, have not done.
While the renminbi's influence in the oil field continues to expand, the international settlement of other commodities has also received the latest developments. According to the latest report of the US financial website Zerohedge, following the settlement of some international oil in the renminbi, international coal in some markets has recently begun to be settled in renminbi. In other words, signs of the use of renminbi to settle international oil and coal, the main energy sources, have also emerged.
At the same time, the dollar-dominated payment system is also being hit. Professor Aditi Kumar of Harvard University said that the rmb crude oil futures have a large share in Asia and the initial emergence of pricing power, and the digital yuan may eventually make it easier for Iran and other countries to bypass the previous monetary system.
In addition, according to the latest data released by the media on April 29, in April, the RMB cross-border payment system CIPS added 3 indirect participants, as of the end of April, the CIPS system had a total of 1307 participants, of which 76 were direct participants and 1231 were indirect participants. Among the indirect participants, 949 in Asia (544 in China), 169 in Europe, 44 in Africa, 29 in North America, 23 in Oceania and 17 in South America, covering 104 countries and regions around the world. In addition, Russian media reported three weeks ago that in the future, the digital yuan will be able to process payments and foreign exchange transactions at the same time, so it can change cross-border trade.
It is worth noting that, as shown in the chart above, the IMF's latest report released a week ago shows that in the fourth quarter of 2021, the dollar's share of international reserves fell further to 58.81% from 59.15% in the third quarter of last year, a new low in 26 years and the third consecutive quarter of decline. You know, in 1977, the share of the dollar was as high as 85%, and through the above chart, it is clear that the share of the dollar went all the way down. (End)