The BRICS alliance is reportedly considering a new “petroyuan” in its latest move to compete with the world dollar hegemony.
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 looking at taking its next steps at a summit in Kazan, Russia, next month.
In a new report, the Official Monetary and Financial Institutions Forum (OMFIF) think tank says that BRICS countries will be discussing how to implement an alternative to the current dollar-based oil payments system – potentially using the Chinese yuan.
Saudi Arabia, the world’s largest supplier of oil, has recently confirmed that it is “open to new ideas” when it comes to oil trade, including using the yuan.
Russia is also looking at 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 as a response to the conflict in Ukraine.
The OMFIF says fully implementing a petroyuan system would, in theory, be difficult for countries to operate under as surplus yuan can essentially only be spent on trade with China or simply placed in foreign reserves. BRICS financial intermediaries would then have to recycle the surpluses to other countries in need.
“The main beneficiaries of the renminbi’s greater role will be Chinese banks, making badly needed profits out of the recycling process. Western financial intermediaries can join them by arbitraging between the dollar-denominated oil market and the renminbi-denominated oil market. However, the introduction of a petroyuan will only further the fragmentation of the global financial system.”
As for the political implications of ditching the dollar for oil trade, Bandar Al-khorayef, the Saudi minister of industry and mineral resources, recently said the country was not interested in mixing politics with commerce.
“The petroyuan is not substantial to [the ministry], we believe Saudi Arabia will do what’s in its best interest … but I think Saudi Arabia will always try new things, and is open to new ideas, and we try not to mix politics with commerce.”
BRICS has been working on its own currency to facilitate trade between themselves, with some reports suggesting that it will be backed by gold.
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