The role of China and the Chinese yuan in the Russian economy
Last month, the volume of yuan and ruble trading in China rose to a six-month high as Chinese exports to Russia increased.
Macrostatistics of Russia under sanctions is closed, in this regard, the dynamics of Russia's foreign trade turnover with China is not available. The analysis was based on indirect data.
Chinese Yuan on the Moscow Stock Exchange
Trade in Chinese yuan paired with the Russian ruble reached a 6-month high, as Chinese exports to Russia jumped amid Western sanctions. Spot trading between the two currencies on the interbank market has grown to 321 million yuan or 48 million US dollars.
The popularity of the Chinese yuan is steadily growing on the Moscow Stock Exchange. The trading volume of the yuan-ruble currency pair has increased more than 10 times since February 2022.
The growth of the share of the Chinese yuan in trade turnover
In May, Chinese exports to Russia jumped by 14% as Russia sought alternatives to goods blocked by Western sanctions.
An increase in shipments means that local exporters have to pay for more receipts in rubles, which, as a rule, contributes to the growth of currency pair trading.
China, reopening its economy after the COVID-19 lockdown, caused an increase in business and financial activity, and supplies could also increase due to the easing of supply chain problems. Spot trading in the dollar and yuan in mainland China also recovered in June.
Meanwhile, China continues to promote its currency on the world stage to challenge the dominance of the US dollar.
Earlier this week, the People's Bank of China announced the creation of a reserve in yuan with five countries and the Bank for International Settlements. This step is intended to present an alternative to the International Monetary Fund with a large volume of dollars.
But Russia has also made steps in favor of the yuan. According to a Reuters report, India's largest cement producer pays for Russian goods in yuan, and traders say there are many similar deals.
"This step is of great importance," a currency trader told Reuters. "In the last 25 years of my career, I have never heard of any Indian organization paying in yuan for international trade. In fact, this is bypassing the US dollar."
In 2021, the trade turnover between China and Russia amounted to 140 billion US dollars. From January to May of this year, this figure is at the level of 65 billion US dollars. Representatives of the Russian government are confident that in the near future the volume of trade between the two countries will grow significantly, which will lead to a wider use of the Chinese yuan.
The imports falling out from Western countries to Russia are mostly replaced by China. Russia's export flows that fall under restrictions are also mostly redirected to Asian countries, mainly to China.
The growth of the share of international settlements in the Chinese yuan
Since June, there has been a sharp increase in the share of the Chinese yuan in currency swap operations on the Moscow Stock Exchange. The volume of such transactions with the yuan significantly exceeded the volume of transactions with the euro and equaled the volume of transactions in US dollars.
This indicates the transition of settlements on foreign trade operations to Chinese yuan. Traditionally, swap operations are used by participants in international trade to hedge currency risks.
After the imposition of sanctions on NSD (National Settlement Depository) in early June, the risk of using the euro and the US dollar in settlements increased significantly. As a result, there has been a trend towards the transition in international settlements to the currencies of friendly countries, primarily to the Chinese yuan.
Demand for the Chinese yuan from the population
Russian banks note an increase in demand for yuan cash from customers. According to Otkritie Bank, the demand for the yuan has grown 8 times, outstripping the popularity of other currencies.
Reserves in Chinese yuan
Earlier, representatives of the Ministry of Finance and the Central Bank of the Russian Federation stated that the share of the Chinese yuan in reserves would increase.
“It is logical to keep reserves in the currency of a trading partner country,” Finance Minister Siluanov said.
The tendency to use the Chinese currency as a reserve currency has grown sharply after Western countries blocked Russian reserves. More than 85% of the world's central banks have announced that they will use the Chinese yuan as a reserve currency.
Risks of the Chinese yuan
Being the main competitor of the US dollar, the Chinese currency is exposed to the risks of sanctions against China. The trade war unleashed by Trump has had a negative impact on the Chinese currency.
Currently, the main risk against the yuan is centered around the settlement of the Taiwan issue. In the event of a negative scenario, the Chinese yuan risks losing its value against other currencies.
Author: Elvir, analyst Сoin-signal.com Club
https://coin-signal.com/cryptonews/the-role-of-china-and-the-chinese-yuan-in-the-russian-economy/
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