France is the first European country to sign trade agreements that do not provide for the use of the US dollar or the euro for payments but the Yuan, China’s currency. To inaugurate these unusual agreements is none other than the state-owned company Total, which has signed an agreement with the China National Offshore Oil Corporation for the purchase of liquefied natural gas (LNG) with payment in Yuan through the Shanghai Petroleum and Natural Gas Exchange .
The deal is said to have an energy content of between 3.2 and 3.4 billion British thermal units. The first Western international LNG transaction settled in yuan is an attempt to promote multi-currency pricing, settlement and cross-border payments, said SHPGX chairman Guo Xu. The Shanghai Stock Exchange launched international LNG trading in August 2020 and will continue to play a platform role and strengthen the financial infrastructure for cross-border yuan settlement business, Guo said. The SHPGX was established in 2015 and last year the volume of natural gas traded on the exchange reached 92.86 billion cubic meters.
CNOOC, the largest offshore oil and gas field operator in China, is busy innovating international resource pricing and regulation models. The promotion of international procurement of resources based on yuan arrangements can promote the globalization of energy trading and build a more diversified use of solid and reliable international currencies. Currently, the Chinese yuan is the fifth most widely used payment currency in the world, and its use in foreign exchange trading has increased to a global market share of 7%, the fastest growth among currencies in the past three years.
The scale of Chinese oil and gas imports is also growing. In 2022, China imported more than 500 million tons of crude oil and more than 100 million tons of natural gas, of which 63.44 million tons of LNG, and the sources are increasingly diversified. Since 2022, Chinese President Xi Jinping has launched a multifaceted currency offensive starting with Saudi Arabia for oil and gas purchases from the Arab states of the Gulf through payments in yuan.
The process started in the Gulf countries is now arriving in Africa and, via France, also in Europe, bringing with it important implications for the strategic currency relationship between the United States and the rest of the world. The emergence of a substitute currency will hit the US dollar and impact Western markets, destroying the monopoly of the petrodollar. China wants to break the US dollar’s grip on the global financial system by also using the digital currency.
After years of preparation, China began rolling out an ambitious test of a digital version of the yuan earlier this year. There are currently pilot projects in four Chinese cities, where transactions totaling more than 2 billion yuan ($300 million) have already taken place. If the program is rolled out nationwide, China would become the most powerful economy to offer a national digital currency, beating out an incoming digital version of the euro from the European Central Bank.
Beijing has touted the digital yuan as a futuristic currency that will make shopping more convenient and secure. Officials also say it could help those without access to bank accounts and other traditional financial services.
Aurelius Tarquini
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