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What consequences this has for Yuan reserves in the country

Payment disputes between Russian companies and Chinese banks have escalated in recent weeks. – Copyright: Mikhail Svetlov/Getty Images

Russia’s Banks have almost used up their yuan reserves because Chinese financial companies are afraid of doing business with the country.

But why? Chinese Banks are hesitant to trade currencies in Russia. The reason: The USA threatened secondary sanctions (not only against Russia itself, but also against trading partners) as long as Russia continues its war against Ukraine. According to “Reuters” Lenders have the Russian Central Bank called upon to address the yuan liquidity shortage in the country as access to the Chinese currency dries up.

Chinese banks are hesitant to do business with Russia

The ruble fell nearly five percent against the yuan earlier this week, Reuters reported. The decline came shortly after the Russian Finance Ministry suggested that the Central Bank of Russia would reduce its daily yuan sales, with central bankers selling just $200 million a day, down from the $7.3 billion sold daily last month.

Sberbank, a major state-owned lender in Russia, told Reuters that it could no longer issue loans in yuan due to a lack of cover. VTB, the second-largest lender in Russiasaid she had urged the central bank to tackle the yuan liquidity shortage through currency devaluations. She added that exporters to the country should also sell yuan to Russia.

US sanctions as a cause of payment difficulties

The payment difficulties are a problem for Russia’s economy, which has become more isolated from global markets following Western sanctions in 2022 and has subsequently relied more heavily on China’s yuan. Russia’s central bank said the yuan had become its main exchange currency this year, accounting for more than half of all currency transactions in the country.

In recent weeks, payment disputes between Russian companies and Chinese banks have escalated, with almost all Chinese banks halting transactions with Russia. Some banks have even returned payments for goods already sent to Russia for fear of sanctions, a Russian media outlet reported.

Read the original text in English here.

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