/ world today news/ The share of payments in national currencies between Russia and China has already grown to 90%, Russian Finance Minister Anton Siluanov said. At the beginning of last year it was only 25%, and now China and Russia have almost completely removed the dollar from their trade. However, switching to national currencies with all trading partners is not always a good idea. Why?
The share of payments in national currencies between Russia and China is already 90%. This is mostly the yuan, but the ruble also plays an important role. This was stated by the Russian Minister of Finance Anton Siluanov in an interview with the Rossiya-1 television channel.
At the beginning of 2022, this share reached only 25%. That is, in a little more than a year and a half, Russia and China managed to increase the share of payments in national currencies from 25% to 90%.
In May 2023, this share was 70%, as Prime Minister Mikhail Mishustin noted. That is, in the last six months alone, Russia and China have transferred another 20% of trade to yuan and rubles. At this rate, getting the figure to 100% is only a matter of time, and a fairly short one at that.
At the same time, Russia is equally developing trade turnover in national currencies with other countries, while the yuan is also used for trade with third countries, Russian Economic Development Minister Maxim Reshetnikov said earlier. In particular, the share of trade in national currencies between Russia and India, as well as Iran, is growing, noted Foreign Minister Sergey Lavrov.
The withdrawal of Russian and Chinese companies from the toxic currencies – the dollar and the euro – is a mutually beneficial decision.
“The past year has clearly shown that the West can use the currency as an economic weapon without hesitation. The authorities of many countries probably experienced a situation where access to multibillion-dollar assets in dollars and euros was simply turned off overnight,” notes investment strategist Alexander Bakhtin. We are talking about freezing both Russian state reserves and the assets of private individuals abroad.
Western sanctions in the financial sector forced a sharp acceleration of the de-dollarization process, which had previously proceeded extremely slowly. It is logical that this should be done with Russia’s number one trading partner, which has become China.
Trade between the countries grew by a third for the second year in a row, and this does not only apply to the growth of oil and gas supplies from Russia. The supply of Russian food to China is also increasing, and significantly so. In 2023, trade turnover with China exceeded 200 billion dollars. “The volume of trade we are talking about today is truly impressive. We set ourselves the goal of reaching $200 billion in 2024, and when we formulated this in 2019, I will tell you frankly, few believed that this was even possible,” Russian President Vladimir Putin said after talks with Chinese President Xi Jinping . At that time, the trade turnover between the Russian Federation and the PRC was 100 billion dollars, and now “it has already reached 200 billion dollars ahead of schedule.”
Given such a huge flow of the yuan, its role in the Russian financial market has grown manifold. A new niche is being created in our country.
“Actually, the Chinese yuan is trying to replace the US dollars and euros in the Russian financial market. Now, foreign currency deposits in banks are mostly found in Chinese yuan. Bond issues are also placed in Chinese currency. This makes it possible to hedge currency risks with approximately the same return on bank deposits as they had before in dollars and euros,” notes analyst Vladimir Chernov.
To protect Russian reserves, the yuan replaced dollars and euros in the gold and foreign exchange reserves of the Russian Federation and in the National Welfare Fund. The yuan’s share of the National Welfare Fund was increased to 60%. Now even currency interventions are carried out using the yuan.
In addition, Russia began to switch to yuan in trade with third countries, in particular with India. It is another largest buyer of Russian raw materials and goods.
As a result, the share of the yuan in the Russian economy has increased significantly since the beginning of 2022. If until February 2022 the share of the yuan in payments for all Russian exports was practically zero, then in August 2023 it increased to 27 %. In import transactions, the share of the yuan rose from 4% to 36%. While the total share of the dollar and euro in imports fell by half.
“The share of the yuan in the foreign exchange market in August increased to a record 44.7%. Russian private investors received an interesting alternative for currency diversification. Yuan-denominated financial instruments appeared on the market, in particular bonds and deposits,” notes Bakhtin.
China is pursuing its goal. First, it is in its interest to increase the yuan’s share of international payments to eventually become the reserve currency, displacing the dollar and the euro. Second, it increases the security of Chinese operations as well.
“We see geopolitical tensions between Beijing and Washington rising, so for China, like Russia, the de-dollarization trend is strategically beneficial. The impressive growth in the share of payments in national currencies between Russia and China not only reflects our country’s economic and geopolitical turn to the East, but is also part of a more global trend that will gain strength in the coming years,” says Bakhtin.
It is profitable for China to buy even more Russian gas and oil for national currencies, since the rest of the imported raw materials must be bought mainly for American currency from the USA itself or its allies. This means that Washington could immediately cut off a significant flow of energy resources to China. Only supplies of Russian raw materials, which the West cannot reach even through sanctions and price ceilings, will remain invulnerable.
Of course, de-dollarization and the transition to the yuan do not always go smoothly, there are also some nuances here. Fewer Western currencies have begun to flow into Russia, but Russia still needs dollars and euros to buy imported goods, including as part of parallel imports, and the yuan is still valued more in Asia.
“The downside is that the yuan is not used at the same time as the dollar and the euro, but instead is often the only method of payment in foreign trade contracts. By using the yuan, Russian importers take on the risks of the Chinese economy and the geopolitics of the PRC,” says Vladimir Evstifeev, head of the analytical department of Zenit Bank.
In addition, problems arose in the transition to trade in national currencies with India. Russia began to ship its oil there in huge quantities against the local currency – rupees. As a result, a large portion of our exporters’ earnings remain in rupee accounts. And this put pressure on the ruble exchange rate.
The fact is that India buys a lot of Russian goods, but it itself exports almost the same groups of goods as Russia. Hence, there is hardly anything to buy in India, that is, nothing to spend the rupees we earn on. In addition, Russian banks were unable to convert such volumes of rupees into rubles.
“We failed to trade with India through a barter scheme. India exports a significant amount of the same products that Russian companies have (fuels, precious metals, organic chemicals, etc.). At the same time, the closedness of India’s domestic foreign exchange market created problems for the withdrawal of foreign exchange earnings in rupees,” says Vladimir Evstifeev.
It is true that in September the head of VTB Andrei Kostin assured that two large banks – VTB and “Sberbank” – have already learned to convert rupees in the accounts of Russian exporters into rubles, so that the non-recoverable currency from India can no longer give pressure on the ruble.
At the same time, Russian exporters began to shift trade with India to the Chinese yuan currency. It is more convenient, simpler, and the demand for yuan among Russian importers is huge. The Indian government, of course, is not very happy about this, but they cannot prohibit their private companies from buying Russian oil for yuan.
“The full transition to trade in national currencies is impossible without a developed financial market infrastructure. For example, it is difficult to trade Turkey in lira when it is losing tens of percent a year. To normalize trade with national currencies, a wide diversification of hedging instruments will be necessary, and this is only possible with a deep integration of the banking systems of the two counterparties,” explains Evstifeev.
As for the ruble, the authorities have already taken a number of measures to strengthen it. This is not only an increase in the Central Bank rate, but also a presidential decree for the compulsory sale of proceeds by exporters. “This will allow you to control the ruble exchange rate almost manually,” says Chernov. In addition, the strengthening of the ruble will be supported by an increase in Russia’s export earnings, which may occur due to a reduction in the discount for Russian oil or an increase in other export items of Russia’s income, the expert adds, as this will also help to reduce the foreign exchange deficit in the country.
Translation: V. Sergeev
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