Is mBridge a real threat to the SWIFT system?
Here is how it works in Practice (Step-by-Step)
- Oil Transaction: Saudi Arabia sells oil to China, agreeing to be paid in Yuan (RMB).[1]
Yuan is credited: China pays SAMA (Saudi Central Bank) with Yuan, increasing Saudi RMB holdings. - Excess Currency Position: SAMA determines the amount of RMB received that exceeds its liquidity needs (the “excess Yuan”).
- Initiate Gold Conversion: Saudi Arabia exercises its contract option to convert this excess RMB to physical gold, hedging against the Yuan’s restricted capital account.
- Execute on SGEI: The conversion is executed on the Shanghai Gold Exchange International (SGEI), typically by purchasing 1 Kg fully allocated gold bars.[2]
- Physical Gold Delivery: The gold is settled and vaulted, potentially utilizing SGEI vaults established in Saudi Arabia for local storage.
Recent unverified reports have drawn attention to the possibility of an SGEI-operated vault being established in Saudi Arabia. Market analyst BullionStar posted on social media that China and Saudi Arabia are “deepening RMB–oil ties,” claiming that an international vault has been “confirmed.”
According to the claim, such a vault would enable oil exporters to convert yuan from energy sales into physical gold directly through the SGEI. BullionStar has framed this as a development that could provide an option for oil-for-gold–style settlement, although official confirmation has not been issued by Chinese or Saudi authorities.
These reports come against a backdrop of strengthening financial and trade engagement between the two countries. BullionStar has previously pointed to roughly $50 billion in Saudi–China investment agreements in 2022 and the establishment of an RMB–Saudi riyal currency swap in 2023.[3]
Analysts note that if such a vault were operational, Saudi Arabia would likely transact in 1 kg bars, the SGEI’s standard for fully allocated physical gold, given that 12.5 kg bars are rarely traded on the exchange.
China and Saudi Arabia Expand Local-Currency Cooperation
China and Saudi Arabia recently signed a $7 billion currency swap agreement, allowing direct settlement between the yuan (CNY) and the Saudi riyal (SAR). This enables bilateral trade to be conducted without using the U.S. dollar as an intermediary currency.[4]
The agreement aligns with a broader global trend in which several countries are seeking to diversify currency reserves and payment systems. China surpassed the United States as Saudi Arabia’s largest trading partner in 2011, and both countries have expressed interest in expanding local-currency settlement mechanisms.
For China, expanding bilateral currency arrangements is part of its long-term aim to increase the yuan’s international use — an objective reinforced through initiatives such as the Belt and Road project, launched in 2013.[5]
China’s Gold Strategy and Yuan Internationalization
China’s growing focus on gold-backed financial infrastructure is widely viewed as part of its effort to build confidence in the yuan and reduce exposure to global currency fluctuations. Gold is traditionally seen as a hedge against inflation and depreciation, and increased gold reserves may support perceptions of monetary stability.
Financial analysts note that gold-linked settlement mechanisms offer countries — including energy producers — an additional option for managing reserves or facilitating trade. While the yuan accounts for only a small share of global payments and reserves, China has taken steps to expand its use by strengthening gold market links and increasing financial infrastructure abroad.
A Development Worth Watching
The reports of an SGEI vault in Saudi Arabia have not been officially confirmed, and its potential impact remains subject to verification and further developments. However, the growing financial cooperation between China and Saudi Arabia, coupled with expanding yuan-based mechanisms, continues to attract close global attention.
Reconciliation Frequency
The file addresses this directly in the RECONCILIATION FREQUENCY section:
- Official schedules are not public for strategic reasons.
- The conversion is an option based on excess reserves, not a fixed schedule.
- Inference: It is likely done on a Periodic Basis (Monthly or Quarterly portfolio reviews) or on an Event-Driven Basis (when Yuan receipts cross a pre-set internal reserve limit).
References:
[1] Yuan-Gold Trade: China’s Strategy to Reshape Global Finance – Sep 23, 2025, Discovery Alert
[2] Are Saudi Arabia and China Forging A New Oil For Gold Trading Partnership?– May 7, 2025, The Deep Dive
[3] Is Saudi Arabia Selling Oil to China for Gold?– Jun 03, 2025, Gainesville Coins
[4] China and Saudi Arabia Enter Into $7B Currency Swap Deal – Preserve Gold
[5] China’s Gold-Backed Currency Revolution: Global Impact and Implications –Sep 30, 2025, Discovery Alert
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