Trading in the yuan-ruble pair surged as Russia struggles under the weight of Western sanctions. (Reuters photo)
HONG KONG: The yuan overtook the US dollar for the first time this week to become the most traded foreign currency on the Moscow stock exchange as tensions with the West push Russia’s economy closer to China.
A total of 64,900 yuan-ruble transactions were concluded on Monday, with trading volume reaching 70.3 billion rubles ($1.17 billion), according to data from the Moscow Exchange Group.
By comparison, spot trading in the dollar-US ruble pair totaled 68.2 billion rubles across 29,500 trades.
Solid trading between the yuan and the ruble continued on Tuesday, but at a slightly lower level.
Russia has been forced to settle more transactions in yuan after being hit by Western financial sanctions for invading Ukraine.
Global payment systems Visa and Mastercard have suspended operations in Russia since March, and a number of Russian banks have been kicked out of the Swift financial messaging system that allows cross-border money transfers.
Russia became the third-largest market for offshore yuan transactions in August, accounting for 4.27% of total yuan payments, behind Hong Kong and the United Kingdom, according to Swift data.
In May, Russia was ranked 12th in the world, but hadn’t been in the top 15 before.
“It was an inevitable process since Russia was pushed to ‘de-dollarize’ its economy under sanctions pressure,” said Temur Umarov, a China and Central Asia expert at the Carnegie Endowment for International. Peace.
Russian traders and companies were looking to diversify their portfolios, Umarov said.
“Before the war in Ukraine, interest in the euro increased dramatically, now this alternative does not seem feasible,” he said.
However, he said this did not necessarily mean the yuan was becoming more popular, but rather reflected the “impasse” Russia had found itself in.
Last month Russia’s Gazprom announced that settlements for its gas supplies to China would be settled half in rubles and half in yuan. Analysts said it was an attempt by Beijing and Moscow to insulate themselves from Western pressure and US dollar hegemony.
Growing use of the yuan will increase Russia’s economic dependence on China as bilateral trade increases, Umarov said.
“Russia will have to go to China and buy more goods and services there if it doesn’t want all that money frozen,” he said, adding that more yuan deals in Russia were likely.
The swift banning of Russian financial institutions is also expected to accelerate the expansion of Beijing’s own cross-border payment and settlement system, which has gained prominence amid US threats to decouple its economy from China’s in 2019.
The Cross-Border Interbank Payment System, or CIPS, was launched in October 2015 to provide an independent international yuan payment and clearing system and boost the international use of Chinese currency.
However, the yuan still lags far behind the dollar and other major currencies like the euro when it comes to global payments.