Qatar will become the first renminbi clearing hub in the Middle East next month, marking a big step in reducing the dependence of oil exporting countries in the Gulf on the US dollar.
Bilateral trade between China and Qatar has been on the rise in recent years. Qatar is the biggest supplier of liquefied natural gas to China.
The appointment of a renminbi clearing bank in Qatar not only helps reduce the region’s long-term financial dependence on the West but also marks a milestone in relations between the Middle Kingdom and Middle East.
This reflects the Middle East’s policy direction toward the East in recent years and coincides with Beijing’s “One Belt, One Road” strategy in cementing trading ties with western Asian nations.
The reemergence of the Silk Road will have significant impact on global order in the long run.
China and Qatar signed a memorandum of understanding in November 2014, followed by the appointment of Industrial and Commercial Bank of China (ICBC) Doha branch as a clearing bank for yuan deals in Qatar.
Also, ICBC has been tasked with exploring opportunities on the “One Belt, One Road” route.
Sheikh Abdullah bin Saoud al-Thani, governor of Qatar central bank, said on March 10 that the country will become the first renminbi clearing center in the Middle East in April.
The move will boost ties between China and Qatar and position Qatar as a regional center for renminbi clearing and settlement.
At present, most wealthy oil and gas exporters in the Middle East rely heavily on the US dollar and peg their currencies to the greenback.
Most of their massive foreign currency reserves are denominated in US dollar.
Beijing is ramping up efforts to internationalize the Chinese currency and boost Chinese investment in the region.
The clearing deal, which also gives Qatar direct access to the Chinese market, represents a win for Doha as it competes with other financial centers in the region.
In 2014, China granted a 30 billion yuan (US$4.8 billion) quota to Qatar investors to invest in mainland Chinese securities.
Qatar, on the other hand, is keen to position itself as a regional hub for yuan transactions while cementing its financial leadership in the region.
That said, Qatar is facing some challenges to its reputation.
These include a corruption investigation into the 2022 World Cup and allegations of human rights abuses on construction workers.
Also, strained ties with some Arab nations may hamper its efforts to become a leading financial player in the region.
This article appeared in the Hong Kong Economic Journal on March 17.
Translation by Julie Zhu
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