China and Russia are ending monopoly of the US dollar in the oil markets by linking their payments to RMB and Rouble.
This new decision of China and Russia will influence oil importers to make payments in Roubles to Russia and in RMB to China.
Two oil giants _ China National Petroleum Corporation and Gazprom of Russia have informed their buyers not to make payments in US dollars any more.
In the first phase, the new payments system will apply to Russian gas supplies to China via the ‘Power of Siberia’ eastern pipeline route that totals at minimum 38 billion cubic metres of gas per year (bcm/y). After that, further expansion of the new payments scheme will be rolled out.
It is apposite to note at this point that although ongoing international sanctions against Russia over its invasion of Ukraine in February has provided the final impetus for this crucial change in payment methodology, it has been a core strategy of China’s from at least 2010 to challenge the U.S. dollar’s position as the world’s de facto reserve currency.
Importantly, Zhou Xiaochuan, then-governor of the People’s Bank of China (PBOC), flagged the notion that the Chinese wanted a new global reserve currency to replace the U.S. dollar. He added that the RMB’s inclusion in the IMF’s Special Drawing Right (SDR) reserve asset mix would be a key stepping-stone in this context.
At that time, 75% of the then-US$4 trillion daily turnover in the global foreign exchange (FX) markets was accounted for by the ‘Big Four’ international currencies: the U.S. dollar (USD), the Eurozone’s euro (EUR), the British pound (GBP), and the Japanese yen (JPY).
However, with change in payment methods to Rouble and RMB, the dominance of the US dollar in oil markets will fizzle out soon.
