Saudi Arabia has recorded its lowest U.S. Treasury holding in the past six years. In June of this year, KSA, the largest holder of U.S. government debt in the region, sold more than $3 billion in shares. Riyadh’s current holding is $108.1 billion, the lowest it’s been since December 2016. Nations across the globe have been diversifying away from the dollar, a topic on the agenda at the BRICS summit this week.
Divesting from the US Treasury
The kingdom holds 41 percent of U.S. Treasury compared to early 2020. Saudi Arabia is not the only nation selling their dollars. In June, the UAE sold around $4 billion in Treasury holdings. The pattern aligns with the intentions of Gulf nations to redirect their investments toward high-risk high-return opportunities. Gulf nations are diversifying away from oil and towards other domestic markets which could promote foreign direct investment.
Abu Dhabi Commercial Bank’s Chief Economist Monica Malik pointed out that historically, Saudi used to hold a significant portion of its reserves in US Treasuries. However, the country’s sovereign wealth fund is now supporting its diversification strategy, Vision 2030, which has led to a redirection of investments within the country. These new avenues for investment include the development of projects, such as the highly anticipated $500 billion NEOM megacity.
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Additionally, substantial investments are being made, like the $266.4 billion allocation announced by the country’s energy minister in January, aimed at generating clean energy across the kingdom.
De-dollarization
The dollar is increasingly losing its global standing as the world’s dominant currency. The launch of the BRICS summit will bring these questions to the forefront as the summit members discuss the establishment of a common payment system. The topic has been discussed at previous summits but will be addressed once more this week.
According to the United Nations Conference on Trade and Development, the nation members of BRICS represent 42 percent of the world’s population, more than 25 percent of global GDP, and conduct 16 percent of world trade.
Already taking place this week, an oil transaction between the UAE and India was settled in rupees, following an agreement forged during Indian Prime Minister Narendra Modi’s recent visit to Abu Dhabi. The agreement entails settling bilateral trade in rupees or dirhams instead of dollars, a move aimed at reducing transaction costs by eliminating the need for dollar conversions.
Similar actions are being taken by Saudi and China. Discussions were held in March 2022 between the two countries to explore the pricing of certain oil sales in yuan rather than US dollars. A year later, in March 2023, Mohammed Al-Jadaan, the Finance Minister of Saudi Arabia, announced at the Davos event that his nation was receptive to trading in currencies beyond the dollar, including options like euros or the Saudi riyal.
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