The BRICS alliance is reportedly considering a new ‘petroyuan’ in its latest attempt to compete with global dollar hegemony.
The BRICS, which was originally launched as a coalition of Brazil, Russia, India, China and South Africa, has since welcomed several other countries into its union and is considering taking the next steps on a meeting in Kazan, Russia, next month.
In a new reportAccording to the Official Monetary and Financial Institutions Forum (OMFIF) think tank, BRICS countries will discuss how to implement an alternative to the current dollar-based oil payment system – possibly using the Chinese yuan.
Saudi Arabia, the world’s largest oil supplier, recently did the same confirmed that it is “open to new ideas” when it comes to oil trading, including the use of the yuan.
Russia is also considering using the petroyuan as an alternative to the petrodollar to reduce its dependence on the US and the SWIFT system, which banned Russian banks in February 2022 in response to the conflict in Ukraine.
The OMFIF says that fully implementing a petroyuan system would in theory be difficult for countries to operate with because excess yuan can essentially only be spent on trade with China or simply placed in foreign reserves. The financial intermediaries of the BRICS countries should then recycle the surpluses to other countries in need.
“The main beneficiaries of the renminbi’s increased role will be Chinese banks, which gain much-needed profits from the recycling process. Western financial intermediaries can join them by arbitrage between the dollar-denominated oil market and the renminbi-denominated oil market. However, the introduction of a Petroyuan will only further promote the fragmentation of the global financial system.”
Regarding the political implications of dumping the dollar for the oil trade, Bandar Al-khorayef, the Saudi Minister of Industry and Mineral Resources, recently said the country was not interested in mixing politics with trade.
“The petroyuan is not substantial [the ministry]We believe that Saudi Arabia will do what is in its interest … but I think Saudi Arabia will always try new things, be open to new ideas, and we try not to mix politics with trade.”
The BRICS have been working on their own currency to facilitate trade between them, and some reports suggest it will be backed by gold.
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