Russia’s Embrace of Chinese Yuan Stalls Over Risk From Sanctions
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The rapid uptake of China’s yuan in President Vladimir Putin’s war economy, spurred by the fallout with the West over the invasion of Ukraine, may have hit its limit. Countries that continue to do business with Russia face growing US pressure, most notably through the threat of secondary sanctions. The gap in yuan overnight borrowing rates in Russia and China drastically widened after US Treasury Secretary Janet Yellen in December said that the US will not hesitate “to take decisive, and surgical, action against financial institutions that facilitate the supply of Russia’s war machine.” In two years, Russia has overtaken Germany, Australia, and Vietnam in terms of trade volume with China, which surged by more than 60% to $240 billion in 2023. The yuan now accounts for about 40% of Russia’s export and import payments and more than half the turnover on Russia’s foreign currency market. However, annual growth in total trade between China and Russia slowed to just 3% in the first five months of 2024 compared to almost 42.5% a year ago. Several of China’s biggest banks stopped accepting yuan from Russia, impacting imports for several months. Russian companies told local media that the issue was resolved using small regional banks after Putin met Chinese President Xi Jinping in May, but the country’s authorities have indicated concerns remain. The yuan’s usage has a certain peak and it is dependent on how much Russia will trade with China and how widespread the yuan will be as a currency for settlements with other countries. Russia’s yuan adoption may have peaked in 2023 for two reasons. First, the threat of secondary sanctions is a powerful deterrent for some of China’s largest institutions for dealing with Russian counterparties. Second, Russia’s yuan use is mostly driven by exports of Russia’s oil, while other countries are still reluctant to accept yuan as payment for imports. The yuan became the only liquid currency available for trades and purchase in brokerage accounts in Russia, accounting for 99.6% of the total. There is still potential to increase yuan usage, but it is small and incomparable to the move that has already happened.
#Russia #China #Yuan #Sanctions #Trade #Us #SecondarySanctions
https://www.bloomberg.com/news/articles/2024-07-09/russia-s-embrace-of-chinese-yuan-stalls-over-risk-from-sanctions/
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