The yuan’s the new dollar as Russia rides to the redback

  • Russia turns to Chinese currency amid sanctions
  • Moscow becomes No.4 trading center for yuan
  • Yuan share of Russian FX market jumps from 1% to 45%
  • Russia’s central bank supports the situation but warns of risks
  • This content was produced in Russia where the law restricts the publication of Russian military activities in Ukraine

MOSCOW/SHANGHAI, Nov 29 (Reuters) – Chinese businessman Wang Min is pleased with Russia’s acceptance of the yuan. His LED lighting company can sell contracts to Russian customers in yuan instead of dollars or euros, and they can pay him in yuan. It’s a “win-win”, he said.

Wang’s plans have been changed by the conflict in Ukraine and the subsequent Western sanctions in Moscow that have closed Russian banks and many of its companies from the dollar and the euro.

His contract manufacturing business with Russia was small in the past, but now he is ready to invest in warehouses there.

“We hope that next year’s sales in Russia can account for 10-15% of our total sales,” said the businessman from the southern Chinese coast of Guangdong. , his annual income of about $ 20 million comes from Africa and South America.

Wang is trying to usher in the rapid “yuanisation” of Russia’s economy this year as the isolated country seeks financial protection from Asian powerhouse China. He saw a win-win situation for Chinese exporters to reduce their financial burden and make payments easier for Russian buyers.

While the yuan, or renminbi, has been slowly depreciating in Russia for years, the slide has turned into an acceleration in the past nine months as the currency has spread to the country’s markets. countries and trade, according to a Reuters review of data and interviews with 10 business and financial experts.

Russia’s fiscal reforms to the east could increase trade with the border, spur economic growth in the dollar and limit Western efforts to empower Moscow through wealth.

The volume of transactions in the yuan-rouble pair on the Moscow Exchange fell by an average of nearly 9 billion yuan ($1.25 billion) a day last month, trading data analyzed by Reuters showed. At first, they rarely exceed 1 billion yuan in a whole week.

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“What happened was that it suddenly became risky and expensive to maintain common currencies – dollars, euros, British pounds,” said Andrei Akopian, managing director of the Moscow-based investment firm Caderus Capital, citing the risk of a foreign holding bank. authorized deposit.

“Everyone was motivated and pushed to the ruble or other currencies including, and first of all, the renminbi.”

In fact, the yuan-rouble trade was 185 billion yuan in October, more than 80 times the level seen in February when Russia launched what it called a “special military intervention” in Ukraine. at the end of the month, according to trade data.

The rise in interest rates has seen the yuan rise in the currency market to 40-45% from less than 1% at the beginning of the year, said Dmitry Piskulov, the head of international projects at the Moscow Exchange’s Foreign-Exchange Market Department.

In contrast, the dollar/ruble exchange rate, which commanded more than 80% of trading volumes on the Russian market in January, has seen its decline to about 40% in October, roughly and transaction information with the central bank.

The US Treasury refused to reveal the rise of the yuan in Russia.

RUSSIAN GIANT WANTS YUAN

International finance shows a similar trend.

Until April, Russia did not make the top 15 list of countries that use the yuan outside of mainland China, according to the value of inward and outward flows, according to data from the SWIFT networking system.

Since then it has jumped to No. 4, behind only Hong Kong, the city that was once a British and Singaporean colony.

To put this in an international context, however, the dollar and the euro are still the largest currencies, accounting for more than 42% and 35% of flows respectively. in September of this year. The yuan has risen to nearly 2.5% from less than 2% two years ago.

Wang’s business ambition is expressed by Shen Muhui, who heads a trade group for small Russian exporters in the neighboring province of Fujian. He said that more and more Russian customers are opening yuan accounts and establishing direct transactions in Chinese currency, which he called a big opportunity.

“The conflict between Russia and Ukraine has created opportunities for Chinese businessmen,” Shen said, adding that his association had received many inquiries from Chinese companies interested in do business in Russia.

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It’s not just Chinese companies, or small companies, that join the yuan train.

Seven major Russian companies, including Rusal, Rosneft and Polyus, have raised a total of 42 billion yuan in bonds on the Russian market, according to Reuters calculations, and the list can Then the No.1 lender Sberbank (SBER.MM) and oil company Gazpromneft said they are also considering renminbi loans.

Aluminum producer Rusal, which buys raw materials from China and then sells a large batch of its finished products there, told Reuters that the share of yuan used in those purchases and sales to this year, and the share will continue to rise. although he declined to give a detailed explanation.

XI AND PUTIN: ‘NO PEOPLE’

Although President Vladimir Putin has long tried to reduce Russia’s dependence on the dollar, geopolitics has pushed this situation to 2022.

China, the world’s No. 2 economy, is the largest country in the world that does not participate in economic sanctions against Russia. In fact, Putin and Chinese President Xi Jinping signed an “unlimited” partnership in February, weeks before Moscow launched what it described as a “special military operation” in Ukraine.

The yuan will account for 19% of Russia’s trade with China in 2021 compared to the dollar’s 49%, Andrey Melnikov, deputy director of the international department at the Russian central bank, said in September.

Although the data for 2022 has not been released, the Chinese currency is growing, according to Melnikov, who told a conference that the demand for the yuan’s liquidity is ripe. increased due to the reduction of access to traditional means of payment and the freezing of foreign and foreign gold. currency exchange.

The central bank declined to comment for this article.

Bank governor Elvira Nabiullina is targeting growth, telling lawmakers this month that the yuan’s rise shows a “change in the financial composition of our economy”.

Administrators are also aware of the potential risks, such as between the increasing amount of information held now with savings, and lending in yuan has just started to increase.

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The central bank said borrowers should try to reduce the growing risk of yuanization of their balance sheets – or gaps between assets and liabilities – by increasing payments in yuan for goods. import, invest in yuan-denominated securities or use yuan in transactions and so on. country.

The authorities do not plan to limit the use of yuan at this time and may encourage banks to use more by satisfying the demand for the currency while encouraging them for dollars and euros, Elizaveta Danilova, director at the office financial stability of the central bank, told a meeting this month.

‘MORE RENMINBI’

Akopian said at Caderus Capital that some Russian media companies have reported that their clients keep a large part of their assets in yuan.

The outflows have led to a sharp drop in interest rates on deposits in Russia. Rates range from 0.01% to 2.45% for one-year yuan deposits in Russia, compared to 1.6% for one-year deposits domestically, according to Russian bankers. and major Chinese banks.

“You can open a renminbi account in many Russian banks already. The interest rates are very low, because there is a lot of renminbi in the pockets of investors,” added Akopian. “That is why as soon as any renminbi product comes to the market, it is very popular. There is a lot of demand.”

Some small Russian investors are also getting on board, looking to hedge against the ruble’s volatility.

Andrey, a communications specialist from Moscow who said he moved to Dubai in September to avoid being called up to fight in Ukraine, bought both yuan and dirhams online through his Russian bank account. , as a safe bet before going.

“I see it as a way to protect my money from the unexpected fall in the value of the ruble,” said the 35-year-old, who asked that his name be withheld because he avoided from the collection.

“I can convert my rubles into these other currencies, but it’s better to buy a share or a bond.”

($1 = 7.2074 Chinese yuan renminbi)

Additional reporting by David Lawder in Washington; Directed by Vidya Ranganathan and Pravin Char

Our Principles: The Thomson Reuters Trust Principles.

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