China’s Progress with Digital Yuan Signals Potential for De-Dollarisation

The Shanghai Petroleum and Natural Gas Exchange (SHPGX) revealed the use of the digital yuan in a significant oil transaction, where PetroChina International purchased 1 million barrels of crude on 19 October.

This move follows the Shanghai Municipal Party Committee and Municipal Government’s appeal to integrate the Chinese central bank digital currency (CBDC), also known as the e-CNY, into global trade, as stated by the exchange.

The state-controlled China Daily views this as “another major step forward” for the digital yuan.

Wang Youxin, a senior researcher of Bank of China, said:

“While the RMB has seen relatively more volatility this year, its internationalization has been advancing steadily, showing that global businesses are according higher recognition to the Chinese currency”

Although the seller and transaction price were undisclosed, the price of the “OPEC basket” of oil from 13 producers stood at $95.72 per barrel on the same day, providing a comparative reference.

Dedollarisation Goal

This crude oil deal signifies a stride for the yuan’s utilisation in international markets and aligns with the global trend towards de-dollarisation.

China Daily’s report indicates that in the first three quarters of 2023, the use of the yuan in cross-border settlements increased by 35% year-on-year, amounting to $1.39 trillion.

In a previous transaction on Shanghai Petroleum and Natural Gas Exchange (SHPGX) in March, the yuan was employed for the purchase of liquefied natural gas (LNG) when the French TotalEnergies agreed to sell LNG to the China National Offshore Oil Corporation (CNOOC).

A subsequent liquefied natural gas deal in yuan took place last week between CNOOC and French Engie.

However, these transactions did not involve the digital yuan.

Digital Yuan

Moreover, at the recent third Belt and Road Forum for International Corporation, the First Abu Dhabi Bank announced a digital currency agreement with the Bank of China, a state-owned commercial bank.

Both China and the United Arab Emirates, including Abu Dhabi, participate in the mBridge platform, which supports cross-border transactions with CBDC.

Chinese President Xi Jinping has set forth ambitious goals aimed at elevating the Chinese yuan’s prominence in global financial markets, with a particular focus on displacing the US dollar.

Under his leadership, various initiatives have been launched to facilitate the internationalisation of the yuan, such as the Belt and Road Initiative, which aims to foster economic connectivity and cooperation between China and numerous countries.

Efforts to enhance the use of the digital yuan in cross-border transactions signify a push towards a more prominent global role for the yuan.

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