Petrodollar to Digital Yuan

China, the Gulf, and the 21^st Century Path to De-Dollarization

Special Project

The international monetary system stands at a pivotal moment of transformation. For nearly half a century, the Petrodollar system has been a cornerstone of US economic power, ensuring oil – the world’s most traded commodity – is priced and paid for in dollars. Now, this system faces unprecedented challenges from technological innovation, shifting trade patterns, and China’s strategic push to reduce dollar dependency.

In this new and comprehensive report, Enodo Economics’ Diana Choyleva examines how three interconnected forces are reshaping global finance.

First, China’s emergence as the world’s largest oil importer has created natural pressure for alternative payment arrangements. Beijing’s development of the digital yuan and cross-border payment platforms like mBridge reflects both its growing economic influence and its strategic imperative to reduce vulnerability to dollar-based financial sanctions.

Second, Saudi Arabia and other Gulf states are pursuing ambitious economic diversification plans that require massive investment in technology and infrastructure. China’s capabilities in these areas, combined with its growing importance as a trade partner, create compelling reasons for deeper financial cooperation beyond traditional dollar-based arrangements.

Third, technological innovation, particularly in digital currencies and blockchain technology, is making alternative payment systems not just possible but potentially more efficient than traditional infrastructure.

Looking ahead five years, our analysis presents three scenarios for how this transformation might unfold. The most likely path is one of managed evolution, where Saudi Arabia gradually expands yuan settlement and investment while maintaining core elements of the current system. However, external shocks – whether from geopolitical conflict, technological breakthroughs, or market upheaval – could force more rapid changes.

While complete displacement of the dollar appears unlikely in the near term, specific aspects of the international monetary system, particularly payment settlement and revenue recycling, could change faster than many anticipate. For the United States, maintaining financial leadership will require modernizing dollar-based infrastructure while preserving the deep markets and strong institutions that make the dollar attractive for international use.

This report provides policymakers, business leaders, and market participants with a detailed roadmap for navigating this complex transition in global finance.

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The report is the result of a year-long project, in collaboration with the Asia Society Policy Institute’s Center for China Analysis (CCA), which we enjoyed tremendously.

Launch Events

We have held three launch events so far—in Washington, D.C., New York, and Riyadh—and we are preparing a fourth event in London.

Washington, D.C., and New York

The Asia Society Policy Institute’s Center for China Analysis (CCA) and Enodo Economics hosted private roundtables in Washington, D.C., on 30 January 2025, and in New York on 31 January 2025, to launch the comprehensive report Petrodollar to Digital Yuan: China, the Gulf, and the 21st Century Path to De-Dollarization.

The discussions were led by the report’s lead author, Diana Choyleva. The roundtables explored critical questions facing U.S. policymakers, including:

• How should the United States respond to China’s growing influence in Gulf energy markets?

• What are the implications of rising RMB use in oil trade for U.S. financial power?

• How can the United States maintain dollar primacy while adapting to technological changes in global payments?

Held at the Asia Society Policy Institute offices in Washington, D.C., and New York, these invitation-only events brought together key stakeholders from government, business, and academia for engaging discussions on these strategic issues.

Riyadh

On 9 February 2025, the King Faisal Center for Research and Islamic Studies hosted a private roundtable in Riyadh titled Petrodollar to Digital Yuan: China, the Gulf, and the 21st Century Path to De-Dollarization, where Diana Choyleva presented her findings from the report.

Held at the King Faisal Center for Research and Islamic Studies, the event was attended by leading academics and policymakers, with discussions focusing on the evolving financial landscape, China’s expanding role in global trade, and the implications for the Middle East, particularly Saudi Arabia.

We extend our sincere thanks to all who participated and contributed to these important discussions.

Acknowledgements

This report would not have been possible without the steadfast support of the Asia Society Policy Institute’s Center for China Analysis, led by Jing Qian. I am grateful to Jing for providing me with the best home for this project I could have asked for. The entire team at the Center made invaluable contributions to bringing this work to fruition. Special thanks go to Christopher Vassallo, Jennifer Choo, Lizzi C. Lee, Inger Marie Rossing, Wendy Ma and Ian Smith, whose collective expertise were instrumental in completing the project.

My colleagues at Enodo Economics have been invaluable in their unique ways. A huge thank you goes to my research team – Jiaming Gu, Alistair Burlinson, Daniel Kasabov and Staś Butler – for their sparky intellectual contributions, thorough investigation and tireless work. Several bright student interns – George Kelly, Siwei Chu, Finlay Sleeman, Matthew Bott, Alfie MacDonald and Avi Shekhar – helped along the way and kept us all on our toes. Lucy Hornby’s superb editorial skills transformed complex ideas into clear prose, while Ani Manova’s creative design work gave the report its polished and professional appearance. Finally, special thanks to Seamus Keaveney, Tsveta Andonova and Salma Abou Zaki for their con­stant encouragement and support.

This report benefited immensely from the guidance of a distinguished advisory panel. I am particularly grateful to Barry Eichengreen, whose thoughtful foreword frames the analysis and whose pioneering work on international currency dynamics has deeply influenced this research. Along with Barry, John Raine, Nigel Inkster, and Michal Meidan provided invaluable strategic insights and expert feedback that significantly enhanced the depth and rigor of this analysis. Their combined expertise in international finance, geopolitics, security, and energy markets helped shape this report’s comprehensive examination of the evolving global monetary system.

We owe a large debt to all experts who took time out of their busy lives to help us deepen our knowledge, challenge our assumptions and give us new ideas: Mohammed Al-Sudairi, Naser Al-Tamimi, Tongjuan Cai, Alexander Feenie, Hussain Haqqani, Bert Hofman, Rachel Hulvey, Adi Imsirovic, Zennon Kapron, Joshua Kroeker, Shanshan Li, Diego Lopez, Matthew Martin, Craig Pirrong, Ben Simpfendorfer, Degang Sun, Rich Turrin, Jodie Wen, Jing Xue, Lu Xue, Tianqi Xu, Jinxiang Yao, Sir Alex Younger, Xiang Yu, Daojiong Zha, and all of those who spoke to us anonymously.

None of this would have been possible without the Smith Richardson Foundation whose grant provided the main financial support for our work, and in particular the guidance and advice Allan Song, our program director, so generously gave us.

Diana Choyleva