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They have done it in the past, but now it is official. Saudi Arabia has confirmed that it will exit for good the petro-dollar system, to which it adhered for the last 80 years. This will allow the country to sell oil in currencies other than the USD. Therefore, Saudi Arabia can sell oil in Chinese RMB, Euros, JPY, Yuan, and digital currencies like Bitcoin.

The petro-dollar deal, which expired on Sunday 9 June, is part of a cornerstone of the United States' global economic dominance. Originally signed on 8 June 1974, it aimed at economic cooperation to cover mutual requirements, i.e. the United States required oil while Saudi Arabia required military aid and the presence of US soldiers in the region.

The petro-dollar deal worked relatively smoothly until 2001, but ever since, the relationship between the two countries has been a global concern.

What is the expected immediate impact?

Established in 1972, when the US decoupled its currency from gold, the system has served the interests of multiple partners. Is the latest shift away a major development and is it accelerating the shift away from the US Dollar? We don’t think so.

Saudi Arabia exported 85.96 million metric tons of crude to China; its exports to China decreased over the last 3 years as Russia has become the main energy source for China. Moreover, Saudi petroleum sales compensate for imports (goods and workforce) from China. In fact, Saudi mega projects such as The Line, Trojena, Sindalah, OXAGON, Neom, Amala, among others, are built under the governance of Chinese companies and these entities are paid in Chinese RMB, respectively in Yuan. In balance, the immediate impact is close to nil, except that Saudi Arabia is draining its natural resources for some pharaonic projects. Provided that these tourist projects are well managed afterward and become a regional point of attraction, then yes, and evidently, there are long-term benefits for Saudi Arabia.

Cross-border CBDC transactions involving petroleum

In another recent move, Saudi Arabia has announced its involvement in Project mBridge, a project which explores a multi-central bank digital currency (CBDC) platform shared among participating central banks and commercial banks. It is built on distributed ledger technology (DLT) to enable instant cross-border payment settlements and foreign exchange transactions.

The project has more than 26 observing members including the South African Reserve Bank, the Bank of Israel, Bank of Namibia, Bank of France, Central Bank of Bahrain, Central Bank of Egypt, Central Bank of Jordan, European Central Bank, the International Monetary Fund, the Federal Reserve Bank of New York, the Reserve Bank of Australia, and the World Bank.

What are the prospets of Project mBridge

Project mBridge is the result of extensive collaboration starting in 2021 between the BIS Innovation Hub, the Bank of Thailand, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People's Bank of China and the Hong Kong Monetary Authority.

In 2022, a pilot with real-value transactions was conducted. As it enters the MVP stage, Project mBridge is now inviting private-sector firms to propose new solutions and use cases that could help develop the platform and showcase all its potential.