Demand for Chinese yuan is growing sharply in Russia
The Chinese yuan remains one of the largest currencies classified as “friendly”. The turnover of Chinese yuan trading on the Moscow Stock Exchange, as well as the demand of the population for cash yuan in banks is steadily growing.
The list of unfriendly countries includes Australia, Albania, Andorra, Great Britain, including Jersey, Anguilla, British Virgin Islands, Gibraltar, European Union member States, Iceland, Canada, Liechtenstein, Micronesia, Monaco, New Zealand, Norway, Republic of Korea, San Marino, North Macedonia, Singapore, USA, Taiwan (China), Ukraine, Montenegro, Switzerland and Japan.
Transactions with the currencies of these countries carry risks of blocking and confiscation of funds by financial institutions of these countries. Therefore, the Russian government and business seek to minimize the volume of transactions with the currencies of unfriendly countries.
Chinese Yuan on the Moscow Stock Exchange
Since February 2022, the volume of exchange trading in the Chinese yuan has increased significantly. If before February the average daily volume of transactions with the Chinese currency did not exceed 200,000 contracts, now it reaches 4 million contracts, which indicates a 20-fold increase in turnover.
The other day, for the first time, the volume of Chinese currency trading on the Moscow Stock Exchange exceeded the volume of euro trading. There are several tools available on the Moscow Exchange for trading the Chinese yuan.
In the futures market, this is the CNYRUBF instrument - an indefinite futures for the yuan. The amount of the guarantee(s) for one contract is 10% of its value or approximately 1000 rubles.
CNY-9.22 is a quarterly settlement futures for the yuan, which will be executed in mid-September of this year. One contract contains 1,000 yuan, and for its purchase or sale it is necessary to have a guarantee of 10% or approximately 1,150 rubles. Options are traded on this contract.
In the traditional foreign exchange market, two instruments are traded with reference to the Russian ruble - CNYRUB_TOD (with delivery “today”) and CNYRUB_TOM (with delivery “tomorrow"). Each lot contains 1,000 yuan and costs approximately 8,700 rubles.
In addition to ruble pairs, dollar - Chinese yuan - USDCNY_TOD and USDCNY_TOM pairs are also traded on the Moscow Exchange. Each lot contains 1,000 US dollars and costs approximately 6,670 Chinese yuan.
Demand in Russia for the Chinese yuan is growing
The growth of exchange trading volumes continues to grow and breaks records. Recently, the Minister of Finance of the Russian Federation Siluanov said that his department is considering the possibility of weakening the ruble by buying currencies of friendly countries.
Today, the Ministry of Finance has submitted proposals to the government on new parameters of the budget rule, which imply the purchase of currencies of friendly countries. Due to the growth of the exchange rates of these countries, the exchange rates of unfriendly countries will also grow, according to the Ministry of Finance.
Many legal entities and individuals face restrictions on the US dollar, euro and other currencies of unfriendly countries. Banks impose high fees for their storage and transfers. This forces participants in currency transactions to reorient themselves to currencies that do not carry risks.
According to Otkritie Bank, since May 20, when the Bank of Russia allowed the purchase of foreign currency, the demand for Chinese yuan in the branches of the credit institution has increased 8 times.
"The Chinese yuan is relatively stable and is not subject to high volatility. It is able to replace the US dollar and the euro as a reserve currency and a currency for savings," says Aliya Zubkova, Deputy Head of the Financial Markets Department at Otkritie Bank.
Over the same period, the demand for pounds sterling and Swiss francs also increased, but weaker, by 2.5 times. Demand for other currencies increased slightly.
Mikhail Shulgin, Head of Global Research at Otkritie Investments, notes that already in March the number of transactions with the Chinese currency exceeded the number of transactions with the US dollar and euro. And the volume of trading in the Chinese yuan has been steadily growing since then.
The Chinese currency will defeat the US dollar and the euro
According to some analysts, the demand for Chinese currency will continue to grow, and the Chinese currency may well replace the US dollar as a foreign currency to save savings.
According to the Central Bank of Russia in June, 11% of the total volume of foreign exchange trading accounted for the Chinese yuan against 6% in April and less than 1% in February. The supply of yuan grew at the expense of exporters who reoriented to Asian markets. A significant share in the demand for the Chinese yuan fell on individuals and amounted to 13.9% against about zero values at the beginning of the year. In June, individuals traded 5.4 billion yuan in Chinese yuan against 0.33 billion yuan a month earlier.
Investment strategist of the management Company "Arikapital" Sergey Suverov commented on the current demand for Chinese currency:
"People are faced with difficulties when buying the usual US dollars and euros, as banks introduce fees for transfers and storage of these currencies. Sanctions risks associated with these currencies also prevail. Russian citizens are switching to the Chinese yuan instead of the dollar and euro. It should be recognized that the Chinese currency is not a fully freely convertible currency, there are large spreads between the purchase and sale prices. But in the absence of other alternatives, the demand for the Celestial currency will continue to grow. To date, the Chinese currency is the only reasonable alternative to investing in rubles or gold. China is the second economy in the world, so confidence in this currency is high. It should not be forgotten that the yuan exchange rate is subject to fluctuations due to many factors, including US monetary policy and geopolitical risks associated with Taiwan. Nevertheless, the Chinese yuan remains almost the only option for saving in foreign currency."
Alexander Timofeev, Director of Analysis of Financial Markets and Macroeconomics at the Eastern Gate IC, agrees with Suverev:
"The Chinese currency is pegged to the US dollar exchange rate, it cannot deviate from it by more than 2% per day. Thus, the purchase of the yuan is an indirect purchase of the American currency. People who are used to keeping their savings in foreign currency, as an alternative to the US dollar and euro, are forced to turn to the yuan. The exchange rate of the yuan is more profitable than bank rates, so people's desire to buy it on the Moscow Stock Exchange is understandable. I believe that the demand for Chinese currency will continue to grow.".
Author: Elvir, analyst Сoin-signal.com Club
https://coin-signal.com/cryptonews/demand-for-chinese-yuan-is-growing-sharply-in-russia/
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