Prince Mohammed bin Salman hosts the Chinese president in Riyadh months ago (Reuters)

The central banks of China and Saudi Arabia said they had agreed to swap local currencies worth 50 billion yuan ($7 billion) or 26 billion Saudi riyals, as relations between the two countries continued to improve.

Saudi Arabia, the world's top oil exporter and China, the world's largest energy consumer, have been working for years to expand ties beyond hydrocarbon cooperation as well as strengthen cooperation in areas such as security and technology.

China's central bank said in a statement that the agreement, which will be valid for 3 years, extendable with the consent of both sides, "will help strengthen financial cooperation between the two countries and expand the use of local currencies. and promote trade and investment" between Riyadh and Beijing.

The move aims to ensure liquidity and exchange rate stability, which will reduce the risk of currency fluctuation for importers, exporters and financial market dealers.

According to Chinese customs data, China imported $65 billion worth of crude oil from Saudi Arabia in 2022, accounting for about 83 percent of the kingdom's total exports to the Asian giant.

Russia remained China's biggest oil supplier in October, despite higher Russian crude prices. Saudi imports fell 2.5 percent from the previous month as the kingdom continued to cut supplies.

Chinese President Xi Jinping told Gulf leaders in December that "China will buy oil and gas in yuan, but China has not yet used the local currency to buy Saudi oil."

Beijing is believed to have the world's largest network of currency swap arrangements with at least 40 countries, but rarely discloses the broader terms of the arrangements.

Witsing Chen, associate professor at the National University of Singapore, said: "China seems to be using swap lines in a very different way than the American one. (China) uses it as a line of credit, so it stands on a consistent basis, not a one-off thing during a financial crisis."

China has been trying for some time to strengthen the yuan's role in international trade and become less dependent on the dollar. Ensuring energy supply is one of the reasons for currency swaps.


Chinese Bank

More than two months ago, Bank of China (BOC) opened its first branch in Riyadh in a move to expand the use of the yuan amid growing economic deals between China and Saudi Arabia, more than two years after receiving approval from the Saudi government.

The Bank of China, one of China's top 4 state-owned banks, is the second Chinese bank to open a branch in Saudi Arabia, after the Industrial and Commercial Bank of China opened its first branch in Riyadh in 2015.

China's ambassador to Saudi Arabia, Chen Weiqing, said at the time that the opening of the branch came as a result of positive developments in bilateral relations between the two countries and the "new phase" of financial cooperation.

The move is part of a growing series of economic activities between China and Saudi Arabia, with their bilateral relations described as at their "best stage ever" after President Xi Jinping's state visit last December to Saudi Arabia.

Source: Agencies