- Russia turns to Chinese currency despite sanctions
- Moscow becomes the 4th offshore trading center for the yuan
- The share of the yuan in the Russian foreign exchange market increases from 1% to 45%
- Russian central bank backs trend but warns of risks
- This content was produced in Russia where the law limits coverage of Russian military operations in Ukraine
MOSCOW/SHANGHAI, Nov 29 (Reuters) – Chinese entrepreneur Wang Min welcomes Russia’s adoption of the yuan. His LED lighting company can bill Russian customers for contracts in yuan rather than dollars or euros, and they can pay for it in yuan. It’s “win-win,” he says.
Wang’s plans were transformed by the conflict in Ukraine and subsequent Western sanctions against Moscow, which shut down Russian banks and many of its businesses to dollar and euro payment systems.
His contract manufacturing business in Russia was small in the past, but now he’s preparing to invest in warehousing there.
“We hope that next year’s sales in Russia can account for 10-15% of our total sales,” said the businessman from China’s southern coastal province of Guangdong, whose income of about 20 million dollars come mainly from Africa and South America.
Wang is looking to capitalize on a rapid “yuanisation” of the Russian economy this year as the isolated country seeks financial security from Asian powerhouse China. He sees a win-win situation for Chinese exporters reducing their currency risks and payment becoming more convenient for Russian buyers.
While the yuan, or renminbi, has been making gradual inroads in Russia for years, the crawl has turned into a sprint over the past nine months as the currency has swept through the country’s markets and trade flows, according to a Reuters review of the data and interviews with 10 economic and financial players.
Russia’s financial shift eastward could boost cross-border trade, present a growing economic counterweight to the dollar, and limit Western efforts to pressure Moscow through economic means.
Total trading in the yuan-ruble pair on the Moscow Stock Exchange averaged nearly 9 billion yuan ($1.25 billion) per day last month, according to exchange data analyzed by Reuters. Previously, they rarely exceeded 1 billion yuan in a whole week.
“What happened is that it suddenly became very risky and expensive to hold traditional currencies – the dollar, the euro, the pound,” said Andrei Akopian, the company’s managing director. Moscow-based investment Caderus Capital, citing the potential danger of a bank holding foreign currency. foreign currency deposits being sanctioned.
“Everyone was motivated and even pushed towards the ruble or other currencies including, and in the first place, the renminbi.”
Indeed, yuan-ruble trade totaled 185 billion yuan in October, more than 80 times the level seen in February when Russia launched what it calls a “special military operation” in Ukraine towards the end of the month. , according to the exchange data.
The renewed interest has seen the yuan’s share of the foreign exchange market rise from less than 1% at the start of the year to 40-45%, said Dmitry Piskulov, head of international projects at the foreign exchange markets department of the Moscow Stock Exchange.
By comparison, the dollar/ruble pair, which accounted for more than 80% of trading volumes in the Russian market in January, saw its share drop to around 40% in October, according to data from the exchange and the bank. central.
The US Treasury declined to comment on the yuan’s growing presence in Russia.
RUSSIAN GIANTS WANT THE YUAN
International monetary flows reflect a similar trend.
Until April, Russia was not even in the list of the top 15 yuan-using countries outside mainland China, in terms of the value of inflows and outflows, according to data from the global financial network system SWIFT.
It has since risen to No. 4, just behind Hong Kong, the city’s former colonial ruler, Britain and Singapore.
To put this in a global context, however, the dollar and euro remain by far the dominant currencies, accounting for over 42% and 35% of flows respectively in September this year. The yuan rose to nearly 2.5% from less than 2% two years earlier.
Wang’s trade optimism is echoed by Shen Muhui, who runs a trade group for small exporters to Russia in neighboring Fujian province. He said more and more Russian buyers are opening accounts in yuan and settling their transactions directly in Chinese currency, which he said was a big plus.
“The Russian-Ukrainian conflict has provided opportunities for Chinese businessmen,” Shen said, adding that his association has received many inquiries from Chinese companies interested in doing business in Russia.
It’s not just Chinese companies, or small businesses, that are joining the yuan bandwagon.
Seven Russian giants, including Rusal, Rosneft and Polyus, have raised a total of 42 billion yuan in bonds in the Russian market, according to Reuters calculations, and the list could grow with top lender Sberbank (SBER.MM ) and petroleum. Gazpromneft said it was also considering going into renminbi debt.
Aluminum producer Rusal, which buys raw materials from China and then sells much of its finished products there, told Reuters it had increased the share of the yuan used in such purchases and sales this year, and that the share would continue to rise, although he declined to provide a detailed breakdown.
XI AND PUTIN: “NO LIMITS”
While President Vladimir Putin has long sought to reduce Russia’s dependence on the dollar, geopolitics has accelerated this trend in 2022.
China, the world’s second-largest economy, is the world’s biggest power not to sign on to economic sanctions against Russia. Indeed, Putin and Chinese President Xi Jinping sealed a “limitless” partnership in February, weeks before Moscow launched what it describes as a “special military operation” in Ukraine.
The yuan accounted for about 19% of Russia’s trade deals with China in 2021 compared to 49% for the dollar, Andrey Melnikov, deputy director of the Russian central bank’s international cooperation department, said in September.
While 2022 figures have yet to be released, China’s currency is gaining ground, according to Melnikov, who told a conference that demand for yuan liquidity has risen sharply due to reduced access to traditional payment methods and the freezing of its gold and foreign currencies. foreign exchange reserves.
The central bank declined to comment for this article.
The bank’s governor, Elvira Nabiullina, is tracking the growth, telling lawmakers this month that the influx of yuan exemplifies a “transformation in the monetary composition of our economy.”
Regulators are also aware of potential dangers, such as a mismatch between a growing number of current accounts held in yuan and deposits in the currency, with yuan-denominated lending only beginning to grow.
The central bank said lenders should seek to reduce growing risks of yuanization of their balance sheets – or gaps between yuan assets and liabilities – by increasing yuan payments for imports, investing in yuan or using the yuan in trade transactions with other countries.
Regulators do not plan to limit the use of the yuan now and could encourage banks to use more of it by easing provisioning requirements for the currency while tightening them for the dollar and euro, said Elizaveta Danilova, director of the central bank’s financial stability department, at a conference this month.
Caderus Capital’s Akopian said some Russian brokerages have reported that their clients are holding an increasing share of their yuan assets.
Capital inflows led to a general decline in interest rates on yuan deposits in Russia. They range from 0.01% to 2.45% for one-year yuan deposits in Russia, compared to 1.6% for one-year deposits on the mainland, according to Russian banking aggregators and major Chinese banks.
“You can already open a renminbi account in most Russian banks. Interest rates are very low, as there is an abundance of renminbi in investors’ pockets,” Akopian added. “That’s why as soon as a renminbi product hits the market, it becomes very popular. There is a high demand.”
Some small Russian savers are also boarding, seeking to hedge against uncertainty in the rouble.
Andrey, a communications specialist from Moscow who said he moved to Dubai in September to avoid being called up to fight in Ukraine, bought yuan and dirhams online through his Russian bank as a precaution before he left.
“I see it as a way to save my funds in the face of an unpredictable decline in the value of the rouble,” said the 35-year-old, who asked that his last name be withheld as he escaped mobilization.
“I can convert my rubles into these alternative currencies, but it’s more like buying a stock or a bond.”
($1 = 7.2074 Chinese yuan renminbi)
Additional reporting by David Lawder in Washington; Editing by Vidya Ranganathan and Pravin Char
Our standards: The Thomson Reuters Trust Principles.
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