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Russian President Vladimir Putin famously shifted his economic gaze to China after Western sanctions invoked during the Ukraine war, and Western elite’s hatred of all things Russian. This has led to a collapse of the use of the USD as a trading currency, and the rise of the Chines Yuan.
With interest rates in Russia at almost 20% – making borrowing in rubles almost unsustainable – yuan-denominated loans have been a lifeline for some Russian companies. But there isn’t enough Chinese currency to go around. In recent months, the market suffered a yuan liquidity crisis, reported independent Russian news outlet The Bell.
The yuan has become the main foreign currency in Russia for three reasons: Western sanctions, a shift away from what the Kremlin sees as “toxic” U.S. dollars and euros, and increased trade with Asian countries. Before the full-scale invasion of Ukraine, there was almost no demand for yuan, but, by May 2024, it was being used for 54% of all transactions on the Moscow Exchange. After Western sanctions were imposed on the exchange this year, the figure jumped to 99.8% (in 2022, more than 80% of trades on the exchange took place in U.S. dollars, and the rest were in euros).
While the yuan has replaced the U.S. dollar as Russia’s preferred currency for international settlements, it is far from ready to actually fulfill this role. Disbalances are inevitable. But problems risk impacting not only on business and currency traders. Amid the yuan liquidity crisis, the ruble has fallen about 15% since the end of August. For Russian consumers, this means exports from China are becoming more expensive, added The Bell.
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