China and Saudi Arabia signed a currency swap agreement of $7 billion on Monday November 20, 2023.According to the Chinese central bank, this swap "will help strengt

China and Saudi Arabia signed a currency swap agreement of $7 billion on Monday 

According to the Chinese central bank, this 

 "will help strengthen financial cooperation... expand the use of local currencies... and promote trade and investment”

It would be pertinent to point out, that China had imported 

The signing of the agreement between China and Saudi Arabia is significant for several reasons. First, it underscores the upswing in Saudi-China ties -- in a changing economic and geopolitical situation. Second, it underscores the growing desire of countries to reduce their dependence upon the US Dollar. Third, it highlights the changing geopolitical landscape of the Middle East in recent years.

China’s growing influence in the Middle East

China has enhanced its influence in the Middle East in recent years and ties with Saudi Arabia have grown. A strong reiteration of this point is the Saudi-Iran deal which it brokered in 

, Xi Jinping visited Saudi Arabia and also addressed a China-GCC Summit. The Chinese President received a far warmer welcome than US President, Joe Biden who had visited Saudi Arabia in July 2023. During Xi’s visit to Saudi Arabia, both sides signed agreements for 

 Saudi Arabia’s Vision 2030 and China’s Belt and Road Initiative (BRI).

Saudi Arabia was invited to join Brazil, Russia, India, China South Africa (BRICS) grouping in August 2023 and will enter the China dominated bloc on 

. It would be pertinent to point out, that China is also strengthening its economic ties with other Gulf Nations- UAE, Qatar and Bahrain

One of the key factors for China’s improvement in ties with Riyadh is some strains between Saudi Arabia and the US – in the initial months of the 

 (over the past year the Biden Administration has invested significant capital in getting ties back on track). Second in a changing global order, Saudi Arabia has sought to re-orient its foreign policy. Third, there are growing synergies between Beijing and Riyadh in the economic and strategic sphere.

A clear reiteration of China’s growing interest and influence in the Middle East is the decision of Ministers from Saudi Arabia, Egypt, Jordan, the Palestinian Authority and Indonesia beginning a tour to 

 countries, for ending the war in Gaza, from China.

Wang Yi while commenting on China's stance on the Israel-Palestine issue said 

“We have always firmly safeguarded the legitimate rights and interests of Arab (and) Islamic countries and have always firmly supported the just cause of the Palestinian people".

Apart from the bilateral dimension of the currency swap agreement and the regional aspect, this agreement also shows that in the current geopolitical situation, countries are beginning to look at alternatives to the US Dollar. Beijing has already signed swap agreements with countries in the Middle East including 

One of the key propellants for de-dollarization has the imposition of US sanctions on Iran and Russia. China has been seeking to internationalize its currency – the Renminbi – but it is important to bear in mind that  China’s currency make up just 

2.3% of SWIFT payments, versus the dollar’s share of 43% and the euro’s share of 32%.

During his address at the China-GCC Summit in December 2022, the Chinese President had flagged the possibility of digital currency cooperation between both sides as well as currency swaps.

In conclusion, the recent swap agreement is important both because of the economic implications and both the geopolitical messaging and the timing.

Saudi-China agreement for currency swap: Economic and geopolitical implications

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