As Russia transitions to the redback, the yuan is the new dollar

the yuan is the new dollar

 The acceptance of the yuan by Russia excite Chinese businessman Wang Min. Russian clients of his LED light company can negotiate contracts in yuan rather than dollars or euros, and they can even pay him in yuan. "Win-win," he declares.

The Ukraine conflict and the ensuing Western sanctions against Moscow, which have cut off Russia's banks and many of its businesses from the dollar and euro payment networks, have altered Wang's plans.

He has had a modest amount of contract manufacturing business with Russia in the past, but he is now ready to engage in warehouses there.

"We hope that sales in Russia can account for 10-15% of our overall sales next year," said the Guangdong-based businessman, whose $20 million in yearly revenue is primarily generated by sales in South and Africa.

This year, as Russia's economy quickly "yuanized," Wang hopes to profit from it as the isolated nation looks to Asian superpower China for financial stability. He sees a win-win situation where Chinese exporters lower their currency risks and Russian purchasers have easier access to payment.

According to a Reuters analysis of data and interviews with 10 business and finance players, the yuan, or renminbi, has been slowly making its way into Russia for years, but in the last nine months the crawl has turned into a sprint as the currency has swept into the country's markets and trade flows.

The financial shift of Russia toward the east might increase international trade, provide a rising economic counterbalance to the dollar, and curtail Western attempts to exert economic pressure on Moscow.

Last month, according to exchange data examined by Reuters, total transactions in the yuan-rouble pair on the Moscow Exchange soared to an average of about 9 billion yuan ($1.25 billion) every day. In the past, they infrequently made more than 1 billion yuan in a single week.

According to Andrei Akopian, managing director of Moscow-based investment firm Caderus Capital, "What happened was that it suddenly became very risky and expensive to keep traditional currencies - dollar, euro, British pounds," citing the potential risk of a bank that holds foreign currency deposits being sanctioned.

Everyone was encouraged to use the rouble or other currencies, starting with the renminbi, and was even pushed in that direction.

Indeed, according to exchange data, yuan-rouble trading reached a total of 185 billion yuan in October, which is more than 80 times the level observed in February, the month in which Russia began what it calls a "special military operation" in Ukraine.

As a result of the uptick in interest, the yuan's market share has increased from less than 1% at the beginning of the year to 40–45%, according to Dmitry Piskulov, head of international projects at the Moscow Exchange's foreign-exchange market division.

According to exchange data from the central bank, the dollar/rouble pair, which in January controlled more than 80% of trade volumes on the Russian market, saw its share fall to roughly 40% as of October.

Regarding the growing popularity of the yuan in Russia, the U.S. Treasury declined to comment.

RUSSIAN GIANTS WANT YUAN Global money flows have a comparable pattern.

According to data from the global financial networking system SWIFT, Russia didn't even rank among the top 15 nations outside of mainland China that use the yuan in terms of the value of inbound and outbound movements until April.

Since then, it has climbed to No. 4, trailing only Singapore, Hong Kong, and the erstwhile colonial powerhouse, Britain.

The dollar and the euro, which as of September this year represented more than 42% and 35% of flows, respectively, are still by far the most widely used currencies globally. The yuan increased from less than 2% two years ago to about 2.5% now.

Shen Muhui, the leader of a trade organization for small exporters to Russia in the neighboring Fujian province, echoes Wang's economic confidence. He claimed it was a major advantage because an increasing number of Russian purchasers were opening yuan accounts and settling deals in the Chinese currency.

Shen stated that the war between Russia and Ukraine had created opportunities for Chinese businesspeople and that his group had received several enquiries from Chinese companies interested in conducting business in Russia.

Not just Chinese businesses or small businesses are boarding the yuan train.

According to calculations by Reuters, seven major Russian corporations, including Rusal, Rosneft, and Polyus, have raised a combined 42 billion yuan in bonds on the Russian market. The list may expand as major lenders Sberbank (SBER.MM) and Gazpromneft have indicated they are also considering renminbi debt.

Rusal, a manufacturer of aluminum, told Reuters it had increased the share of yuan used in those purchases and sales this year and that the share would continue to rise, though it declined to provide a detailed breakdown. Rusal purchases raw materials from China and then sells a significant portion of its finished goods there.


Russia's president, Vladimir Putin, has long aimed to lessen the country's reliance on the dollar, but in 2022, geopolitics have accelerated this process.

The second-largest economy in the world, China, is the only major nation-state to opt out of the economic sanctions against Russia. Indeed, weeks before Moscow began what it calls a "special military operation" in Ukraine, Putin and Chinese President Xi Jinping signed a "no limits" agreement.

According to Andrey Melnikov, deputy director of the international cooperation department of the Russian central bank, the yuan made up around 19% of Russia's trade settlements with China in 2021 compared to the dollar's 49% share.

Melnikov stated at a conference that the demand for yuan liquidity has increased sharply as a result of decreased access to conventional payment methods and the freezing of China's foreign exchange and gold reserves, even though 2022 statistics haven't yet been released.

For this piece, the central bank declined to comment.

Elvira Nabiullina, the head of the bank, is keeping an eye on the expansion and last month told lawmakers that the influx of yuan demonstrated a "change of the currency composition of our economy."

At a conference this month, Elizaveta Danilova, director of the central bank's financial stability department, stated that regulators do not currently have any plans to restrict yuan usage and may even encourage banks to use it more by relaxing the provisioning requirements for the currency while tightening them for dollars and euros.


Some Russian brokerages reported that their clients were keeping an increasing percentage of their assets in yuan, according to Akopian at Caderus Capital.

The influxes have caused interest rates on yuan deposits in Russia to drop significantly. According to Russian financial aggregators and significant Chinese banks, they range from 0.01% to 2.45% for one-year yuan deposits in Russia as opposed to 1.6% for one-year deposits on the mainland.

"The majority of Russian banks already allow you to open a renminbi account. Because there is a surplus of yuan in investors' pockets, interest rates are very low "Akopian tacked on. "Because of this, whenever a new renminbi product enters the market, it quickly gains enormous popularity. There is a lot of demand."

Small Russian savers who want to protect themselves from rouble instability are also joining the bandwagon.

Andrey, a communications expert from Moscow who claims he moved to Dubai in September in order to avoid being drafted to fight in Ukraine, made online purchases of yuan and dirhams through his Russian bank as a precautionary measure before he departed.

The 35-year-old, who requested that his last name not be used because he escaped the mobilization, claimed that he saw it as a method to protect his money from an unpredicted reduction in the value of the rouble.

I can exchange my rubles for these alternative currencies, but doing so is more like purchasing stock or bonds.

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