Chinese currency for Oil trade

Chinese currency for oil trade

Russia has been trying to sell oil at significant discount using yuan as reference currency. 

The U.S is using economic advantage to freeze dollars. 

For oil trade between India and Russia, Chinese currency can become alternative option. 

Reasons behind this

•Russia has been trying to sell oil at significant discount to India as demand for Russian oil has dropped since the U.S and Europe gas imposed sanctions. 

•As part of Western sanctions, certain Russian banks were removed from the SWIFT payments which affects the ability of Russia's ability to trade with rest of the world.

•The Russian Central bank foreign reserves were also frozen which in turn has dented Bank of Russia's ability to use it's foreign reserves to defend its currency. 

•India is thinking of purchasing Russian oil by paying Russian ruble. But if sanction still goes on, and we keep on trading with Russia through Indian currency or Russian currency then Russia will be in problem as Russia is net exporter to India and there will be surplus Indian currency which they won't be able to use elsewhere as the acceptability of rupee in international trade is less. 

Reasons for using Chinese yuan instead of dollar 

•Major oil producers have sold their produce to foreign buyers in exchange of U.S dollars. 

•Oil sellers have been willing to accept U.S dollars for their oil because the currency is widely accepted.

•People around the world have been willing to sell their goods for U.S dollars in the hope that can these dollars to purchase valuable American goods. 

•The global trade is carried out using dollars is cleared by banks located in the U.S.

•To avoid this risk, China has emerged as significant economic power and thus made yuan as acceptable  currency for global trade. 

•However, only 3% of global trade is facilitated by Chinese yuan while 90% of trade still happens through U.S dollars.