Further de dollarization? Pakistan purchases Russian crude oil in Chinese yuan | Pakistan

Release time:Apr 13, 2024 21:40 PM

Reuters reported on the 12th that Pakistan's Minister of Oil, Musadik Malik, stated on the same day that Pakistan had paid for the first batch of intergovernmental import transactions of Russian crude oil in Chinese yuan, marking a significant shift in Pakistan's past US dollar led import and export payment policy.

A win-win transaction

Malik said that according to the agreement reached by the governments of Pakistan and Russia in April this year, the oil purchased this time is 100000 tons, of which 45000 tons have arrived at Karachi Port in Pakistan on the 11th, and other oil is currently in transit. He did not disclose any commercial details such as pricing or discounts, but stated that the payment was made in Chinese yuan.

Malik revealed that the traded oil is Ural light crude oil. Pakistan refining company PRL will conduct refining. Pakistan has always relied on Middle Eastern oil in the past, but Malik said he hopes that one-third of Pakistan's imported oil in the future will come from Russia.

Reuters reported that the current foreign exchange reserves held by Pakistan's central bank are almost insufficient to cover a month's import expenses. Therefore, Pakistan's purchase of discounted Russian crude oil not only means that Russian crude oil has a new export channel, but also provides a breathing space for Pakistan's difficult fiscal situation.

Analysts point out that due to the long-term failure of the Pakistani government and the International Monetary Fund to reach an agreement on loan terms, the shortage of foreign exchange and US dollars in Pakistan has not significantly eased in the past year. This has led to a shortage of energy sources such as oil and coal that Pakistan heavily relies on imports, and there is an urgent need to find alternative currencies to use the US dollar to pay for energy imports.

Recently, Pakistan has been focusing on promoting local agricultural products and other trade with China, and China has also provided convenient conditions for Pakistan, including loan extensions, to help Pakistan overcome its difficulties. This makes RMB trade the most accessible and reliable international payment solution for Pakistan outside of the US dollar. Pakistani Electricity Minister Kuram stated in an interview in May that Pakistan hopes to settle Russian crude oil in Chinese yuan and hopes that this can become a long-term arrangement.

Rossiyskaya Gazeta Daily pointed out that in response to Western sanctions, Russia has steadily promoted the use of local currency to settle oil and gas transactions in recent years, and the trading volume of Chinese RMB, Türkiye lira, Russian ruble, UAE dirham and other currencies is increasing. Russian Finance Minister Silvanov said that the Russian Ministry of Finance plans to use the Chinese yuan as a supplementary fund to the National Wealth Fund starting from 2023, with the current proportion of the Chinese yuan reaching 60%.

The US "Business Insider" website believes that Pakistan is a country that relies on energy imports and is currently shrouded in economic difficulties, which has led it to join a group of countries that have emerged from dollar denominated trade. The Chinese yuan is becoming increasingly popular in cross-border payments, even in transactions that do not involve China. As Pakistan shifts towards RMB settlement, countries around the world are launching reserve currencies to either trade with heavily sanctioned countries such as Russia or seek political leverage.

The process of "de dollarization"

Reuters noted that earlier this month, the Pakistani government also proposed opening a barter trade process with Russia, Afghanistan, and Iran. "This is another sign that this South Asian economy is seeking to 'de dollarize' in commodity trading and may shift from the West to the East."

Since the outbreak of the COVID-19, the aggressive monetary policy of the United States has had a serious impact on the world, especially on emerging market countries. In this context, "de dollarization" and the use of RMB settlement have become beneficial attempts for countries to explore currency multipolarity.

In February this year, the Iraqi central bank announced plans to settle trade with China in Chinese yuan to improve Iraq's access to foreign currency. In March, China National Offshore Oil Corporation and Total Energy of France completed the first cross-border RMB settlement transaction for liquefied natural gas. In April, Israel included the Canadian dollar, Australian dollar, Japanese yen, and Chinese yuan in its foreign exchange reserves for the first time in history, while reducing its holdings in the US dollar

A series of examples indicate that more and more countries are beginning to accept the renminbi as a cross-border payment tool. The function of the renminbi as an international settlement mechanism and means of circulation is being strengthened. This will help accumulate experience for large-scale use of RMB settlement.

According to the International Monetary Fund, as of the fourth quarter of 2022, the proportion of the US dollar in global official gold and foreign exchange reserves has dropped to 58%, the lowest level in nearly 30 years.

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