Deutsche Bank says Iran conflict could trigger the emergence of "Petro-RMB"

Deutsche Bank said that the Iranian conflict is testing the role of the U.S. dollar as the world’s benchmark currency for pricing oil in global trade, and one of its long-term effects could be more transactions shifting to the use of the renminbi.

Deutsche Bank strategist Mallika Sachdeva said in a report Tuesday that the conflict could become a catalyst for weakening the dominance of “petrodollars” and the emergence of “petroyuan.” He noted media reports that Iran allows ships to pass through the Strait of Hormuz on the condition that oil payments are made in renminbi.

The report said that the further unraveling of the “petrodollar” system could have “major knock-on effects” on the dollar’s use in global trade and savings, as well as its standing as the world’s reserve currency. At the same time, China is also accelerating efforts to promote internationalization of the renminbi, challenging the dollar’s dominance in global trade and finance.

The “petrodollar” mechanism dates back to 1974, when Saudi Arabia agreed to price oil in U.S. dollars and invested its surplus in dollar-denominated assets in exchange for security guarantees from Washington. However, Saudi Arabia’s oil exports to China are now four times its exports to the United States.

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Editor: Yu Jian SF069