The People's Bank of China (PBC), the central bank, and the Saudi Central Bank have signed a local currency swap agreement. The swap size is 50 billion yuan ($6.98 billion) or 26 billion Saudi riyals. It will be valid for three years and can be extended by mutual agreement, the PBC said on Monday in a statement. 

The swap arrangement, which has been approved by the State Council, will strengthen financial cooperation, expand the use of both currencies and promote trade and investment facilitation, read the statement. 

Amid the continued internationalization of the yuan, experts said that the swap will have a demonstration effect and encourage more countries in the Middle East to follow suit. 

The agreement is a breakthrough to promote the use of the yuan in the Middle East and an opportunity to advance the yuan's global use, Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Monday.

Saudi Arabian businesses can use the yuan in more scenarios with fewer restrictions, especially for international trade and external economic cooperation, said Xi, adding that the deal may facilitate bilateral energy trade. 

For instance, as one of the largest crude oil producers in the world, Saudi Arabia usually uses the US dollar for its international trade, Xi added. Observers said that the use of the yuan may bolster bilateral crude exchanges. 

In 2022, China imported 508 million tons of crude oil, and half of the top 10 sources were Arab countries, with Saudi Arabia ranked first, according to China Petrochem. 

The report added that about one-quarter of Saudi Arabia's crude oil has been exported to China in recent years. China is the largest importer of crude oil from Saudi Arabia.

More and more countries now prefer to use local currencies to settle foreign trade deals to reduce their reliance on the US dollar, said Xi. Saudi Arabia's pioneering move may play a vital role in boosting the yuan's use among regional countries, which will also support the currency's internationalization, he noted.

Chinese authorities are striving to promote the yuan's internationalization. China's central bank has vowed to promote the internationalization of the yuan earlier this month in a steady and prudent manner, with targets set for the opening-up of the financial market. Facilitation of the use of the yuan as an international currency is an important highlight.

The PBC said that continuous efforts will be made to steadily advance bilateral currency swaps and local currency settlement cooperation with other central banks, including effectively leveraging currency swaps to support the development of the offshore yuan market and facilitate trade and investment.