In a significant move highlighting the increasing influence of digital currencies on global trade, China’s central bank digital currency (CBDC), the digital yuan or e-CNY, was employed to settle a major oil deal. This groundbreaking transaction saw the purchase of 1 million barrels of crude oil on the Shanghai Petroleum and Natural Gas Exchange (SHPGX) on Oct. 19.
This landmark trade came in the wake of the Shanghai Municipal Party Committee and the Municipal Government’s directive to implement the digital yuan in international commerce. Such a move has been heralded as a “major step forward” by China Daily, a state-run news agency.
While specifics about the seller and the exact value of the deal remain undisclosed, for context, the “OPEC basket” of oil from 13 different producers was priced at $95.72 per barrel on the very same day.
Notably, this development signals a broader trend of the yuan gaining traction in global markets and a move towards de-dollarization. The first three quarters of 2023 alone saw a 35% annual increase in the use of the yuan for cross-border settlements, touching $1.39 trillion.
Historically, yuan transactions on the SHPGX started in March when French TotalEnergies and the China National Offshore Oil Corporation (CNOOC) struck a deal over liquified natural gas (LNG). Another such LNG transaction took place between CNOOC and French Engie, though neither of these involved the digital yuan.
Coinciding with these events, the First Abu Dhabi Bank entered into a digital currency agreement with the Bank of China on Oct. 19 during the third Belt and Road Forum for International Corporation. Both China and the United Arab Emirates (UAE) are integral to the mBridge platform, which aims to facilitate cross-border transactions using CBDC. Plans are in place to roll out mBridge as a functional product in the upcoming year.
In related news, Abu Dhabi and India reached an agreement in August, stipulating the use of rupees to settle oil transactions.