Saudi Arabia is the world's largest oil exporter and home to the biggest oil company globally, playing an extremely important role in the global economy and energy export sector.
According to data released by the U.S. Department of the Treasury, Saudi Arabia has been significantly selling off U.S. Treasury bonds, having reduced its holdings for three consecutive months this year.
Currently, it holds $108.1 billion in U.S. Treasury bonds, down from $184.4 billion in 2020, with a cumulative sale of $76.3 billion, representing a 40% decrease in holdings over three years, which is very rare.
Why is it considered rare?
The relationship between Saudi Arabia and the United States is quite special.
Advertisement
The petrodollar system has contributed significantly to the international status of the U.S. dollar today, and Saudi Arabia played a crucial role in its establishment.
It was Saudi Arabia that led the way in using the U.S. dollar for oil exports in the 1970s, setting an example for other oil-producing countries in the Middle East, ultimately leading to a deep entanglement of oil and the U.S. dollar.
The U.S. dollar gradually took control of the global oil trade, and in exchange for its interests, the U.S. has supported Saudi Arabia in all aspects, including economy, trade, and international influence.
For many years, Saudi Arabia has exported oil using U.S. dollars and has been a long-term buyer of U.S. Treasury bonds with the dollars it received, making it a staunch supporter of the international status of the U.S. dollar.
However, with the changing international landscape, Saudi Arabia's significant sale of U.S. Treasury bonds is not good news for the United States and has caused concerns about the petrodollar system, hence the rarity of this phenomenon.
The primary reason for Saudi Arabia's sale of U.S. Treasury bonds is to allocate more funds to other assets.
Especially since the U.S. and Europe froze Russian assets, it has triggered concerns among countries about the safety of their own assets.
Additionally, the continuous expansion of U.S. debt has raised concerns about the future risks of U.S. Treasury bonds.
At the same time, China and Japan have also been selling U.S. Treasury bonds significantly since the U.S. started raising interest rates last year.
According to statistics, Japan sold a total of $220 billion in U.S. Treasury bonds in 2022, largely to protect the yen's exchange rate and had to sell U.S. Treasury bonds.
Since entering 2023, Japan has started to increase its holdings of U.S. Treasury bonds again.
China has also been selling U.S. Treasury bonds, reducing its holdings by another $13.6 billion in July of this year, bringing the total to a new low of $82.18 billion, with a continuous decline in holdings for four consecutive months.
Globally, "de-dollarization" has been moving forward, and countries are actually putting it into practice.
Particularly in South America, Brazil and Argentina have announced that they will use their own currencies for trade with China, bypassing the U.S. dollar.
Currently, 80% of trade between China and Russia is settled in local currencies.
Russia has a lot of energy to export to China, such as oil and natural gas, while China has a lot of industrial products to export to Russia, such as cars, mobile phones, home appliances, toys, clothing, etc., with a very strong complementarity.
After Russia's energy supply to Europe was cut off, it began to focus on the East, not only exporting oil to China but also a large amount to India.
Initially, India used the rupee to trade with Russia, but later, because the rupee was not widely accepted, India had to use the Chinese yuan to pay for oil and other energy imports from Russia.
During this round of U.S. interest rate hikes, the dollar's return has caused a dollar shortage in various countries, providing an opportunity for the Chinese yuan to engage in currency swaps with many countries.
For example, after swapping currencies with China, Argentina used the Chinese yuan to repay its dollar debt, thus avoiding the impact of the U.S. interest rate hike.
At the new BRICS summit, there were six new countries joining, including Saudi Arabia, the United Arab Emirates, and Iran.
As oil-producing countries in the Middle East, their joining the BRICS is of great significance, and the BRICS countries have already begun preparations to create a common currency that is not the U.S. dollar.
Currency swaps and local currency settlements within the BRICS countries have already begun.
From all indications, global "de-dollarization" is not an empty promise, and more and more countries are taking practical measures.
Although the process is challenging, the future prospects for a new global economic order are broad.