Saudi Arabia and China Strengthen Ties with $6.93 Billion Currency Swap Agreement

In a move to deepen their multifaceted relationship, Saudi Arabia, the leading global oil exporter, and China, the world’s largest energy consumer, have broadened their collaboration beyond hydrocarbon interests. The latest development sees the People’s Bank of China and the Saudi Central Bank signing a local currency swap agreement worth 50 billion yuan ($6.93 billion) or 26 billion Saudi riyals.

This financial accord, valid for an initial three-year period and subject to extension through mutual consent, was unveiled on Monday. The agreement is anticipated to fortify financial cooperation, expand the utilization of local currencies, and foster trade and investment ties between Riyadh and Beijing, according to statements from both central banks.

The initiative comes as part of a broader trend where the two nations have been diversifying their ties into realms such as security and technology. Notably, China imported $65 billion worth of Saudi crude in 2022, comprising a substantial 83% of the kingdom’s total exports to the Asian economic powerhouse.Although Russian crude remained China’s top oil supplier in October, with Saudi imports experiencing a 2.5% dip from the previous month due to supply restrictions, the collaboration between Saudi Arabia and China continues to gain momentum.

Chinese President Xi Jinping had previously expressed China’s commitment to purchasing oil and gas in yuan during discussions with Gulf Arab leaders in December of the preceding year. Despite this commitment, the yuan has not yet been employed for Saudi oil purchases, as per statements from traders familiar with the matter.

China’s approach to currency swap agreements appears distinct from the United States, with experts noting that China utilizes these arrangements as an ongoing credit line rather than a one-time response to a financial crisis. Weitseng Chen, an associate professor at the National University of Singapore, remarked, “China seems to be using swap lines in a very different way to the U.S.”

This move follows Argentina’s activation of a $6.5 billion currency swap line with China in October, marking the second instance in three years. The South American nation sought to bolster its dwindling foreign currency reserves amid a severe economic crisis characterized by annual inflation exceeding 130% and negative central bank dollar reserves.