Financial

China’s Yuan Takes Center Stage in Global Energy Trade: An Analysis of its Impact on the US Dollar and the World Economy

China Completes Its First Yuan-Settled LNG Trade, Signals Shift Away from US Dollar in Global Trade

China’s national oil company, CNOOC, and France’s TotalEnergies have made history by completing China’s first-ever yuan-settled trade of Liquefied Natural Gas (LNG). The transaction was carried out through the Shanghai Petroleum and Natural Gas Exchange, with approximately 65,000 tonnes of LNG imported from the UAE changing hands in the trade. This significant move by China signals a shift away from the US dollar’s dominance in global trade.

China’s Push for Yuan Settlements

Over the past few years, China has been pushing to settle oil and gas trades in yuan, aiming to establish the currency internationally and weaken the US dollar’s grip on global trade. In December, President Xi Jinping announced during a visit to Riyadh that China plans to “make full use” of the Shanghai exchange as a platform for carrying out yuan settlements of oil and gas trades.

As the world’s second-largest economy, China’s push for the yuan’s internationalization could have far-reaching implications for the global economy. By reducing its reliance on the US dollar and strengthening the yuan’s position, China could position itself as a major player in the global financial system, challenging the traditional dominance of the US dollar.

Implications for the Global LNG Market

The completion of China’s first yuan-settled LNG trade has important implications for the global LNG market. China is the world’s largest importer of LNG, and with this move, it could potentially drive up demand for yuan-denominated trades, increasing the use of the currency in the energy sector.

Moreover, the move by CNOOC and TotalEnergies to settle the LNG trade in yuan highlights the growing acceptance of the currency in the global energy industry. As countries like Russia increasingly embrace the yuan amid Western sanctions, it seems that the currency is gaining wider acceptance as a viable alternative to the US dollar.

Conclusion

The completion of China’s first yuan-settled LNG trade is a significant milestone in the country’s push for yuan internationalization and its efforts to reduce the US dollar’s dominance in global trade. The move has important implications for the global LNG market, with the potential to drive up demand for yuan-denominated trades and increase the use of the currency in the energy sector. It remains to be seen how the shift away from the US dollar will impact the global financial system, but it’s clear that China is positioning itself as a major player in the global economy.

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