Share of Trade Finance - SWIFT

More so than an impact on exchange rates, bilateral trade and currency use deals between MEA markets and China and Russia have implications for investment flows and multinationals’ competitive environment. Major deals with China and Russia using bilateral currencies in countries such as the UAE, Iraq, and Turkiye will not result in less demand for US dollars or euros for MEA markets; in fact, they will continue to need significant foreign exchange reserves to finance their imports, which will mainly be settled using the US dollar. However, closer economic ties with China and Russia have the potential to increase the competitiveness of companies from both countries by raising MEA governments’ preferential treatment of them.


  • The UAE and India agreed on July 15, 2023 to settle trade payments using Indian rupees instead of the US dollar. 
  • In late March 2023, China conducted its first ever yuan-settled energy deal with the UAE from which it purchased 65,000 tons of LNG.
  • In February 2023, Iraq allowed the private sector to settle payments for imports from China in yuan. The agreement does not cover oil trade, which is still settled using the US dollar. 
  • Iran and China have been settling cross-border payments using the Chinese yuan since the start of the 2022 Iranian year. 
  • Russia and Iran have established a mechanism that allows the two countries to settle payments using their respective national currencies. The latest media reports reveal that 80% of bilateral trade settlements are now conducted using their national currencies.
  • Nigeria and China established a currency swap agreement in 2018 that was renewed in 2021 for another three years. The initial swap agreement was worth US$ 2.4 billion.

Our View

It is evident that after the Russia/Ukraine war, countries with current account surpluses or large energy revenues, such as the UAE and Saudi Arabia, have explored opportunities to invest their earnings outside of US treasuries. However, they have not succeeded in securing attractive alternatives, which is resulting in a delayed utilization of energy revenues by the GCC governments. If these countries begin to invest in Russian or Chinese treasuries in a systematic way, this could begin a long path of divergence from the US dollar as a global reserve currency. 

However, until then, the small number of bilateral trade quoted in a currency other than the US dollar will not reduce the need for countries such as Turkiye, South Africa, Egypt, and Nigeria to acquire foreign currencies to fund their imports. The solution to reducing currency volatility for vulnerable MEA markets is to increase domestic production capacity. 

Meanwhile, if the UAE and Saudi Arabia are selling their energy products in non-USD currencies, such as the Chinese yuan, they will be accumulating savings in those currencies. They will either need to convert those to US dollars again to finance international imports, or may become inclined to import from China or the respective country using the accumulated funds.

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