China and Saudi Arabia continue to cosy up on the trade front. Theoretically that could spell trouble for the reserve status of the US dollar – and, by extension, US stock market valuations – although a decisive move away from the greenback seems as remote a prospect as ever.
The two countries have initiated a three-year, 50bn yuan (£5.56bn) currency swap deal, which is designed to promote non-dollar denominated trade flows. It’s a relatively modest arrangement when you consider that trade between the two countries was worth more than $106bn (£84bn) in 2022. And for the moment it is primarily aimed at non-oil trade.
It is a little over a decade since China supplanted the US as Saudi Arabia’s biggest trading partner and that status has been cemented in the intervening period, so the currency swap deal also needs to be seen in that context. It is also the latest in a series of bilateral trade arrangements that have been put in place as geopolitical tensions have intensified in recent years, the usual prerequisite for criticism of the disproportionate influence of the dollar.