China’s yuan on the rise in oil trade, but petrodollar here to stay: report

Helped by digital yuan and advancements in financial tech, more yuan-backed transactions are taking place in crude settlement

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China’s yuan has grown in stature, becoming more commonly used as a medium of exchange in the international oil trade. Photo: AFP

Published: 7:30pm, 16 Jan 2025

The expansion of China’s digital yuan and financial technology are helping to boost yuan settlements in the crude trade and hastening the decline of the petrodollar, a report from a macroeconomic forecasting firm said – though a changing of the guard remains unlikely.

“The petrodollar’s decline in the Gulf isn’t a question of if, but when – and ‘when’ is coming faster than most realise,” said Diana Choyleva, chief economist at London-based Enodo Economics, citing “rapid changes in the technology of finance” in the report published Wednesday.

“While a petroyuan may gain ground, it is unlikely to fully supplant the petrodollar in the foreseeable future,” said the author, also a senior fellow at the Asia Society Policy Institute’s Center for China Analysis.

Broader adoption of the petroyuan – shorthand for the use of China’s currency in cross-border crude oil settlements – is widely seen as a necessary step in the yuan’s further internationalisation and a challenge to the dominance of the US dollar in global commodity markets.

As the world’s largest oil importer, China has fast-tracked the development of an independent financial infrastructure to reduce its reliance on US dollar-based systems and the potential weak points therein. Of particular interest to Enodo were the Cross-border Interbank Payment System (CIPS) and the inclusion of China’s e-CNY on the mBridge platform for central bank-backed digital currencies.

These innovations “offer oil producers not only viable but potentially superior alternatives” to dollar-based settlement channels, Choyleva said, which carry a “particular vulnerability to disruption” from technological advances.