Russia’s strategy to rely more China’s yuan is backfiring
Jason Ma | September 7, 2024 at 5:12 PM EDTAfter the U.S. and its allies sanctioned Russia in 2022 for its invasion of Ukraine, Moscow turned away from the dollar and euro in international transactions and relied more on China’s yuan.
That coincided with more trade between the two countries as Russia was largely shut out of Western markets as well as the global financial system.
By June, the yuan accounted for 99.6% of the Russian foreign exchange market, according to Bloomberg, which cited data from Russia’s central bank. And Russian commercial banks ramped up corporate loans denominated in yuan.
But this dependence on the yuan is now backfiring as top Russian banks are running out of the Chinese currency, Reuters reported on Thursday.
“We cannot lend in yuan because we have nothing to cover our foreign currency positions with,” German Gref, CEO of top Russian lender Sberbank, said at an economic forum.
That’s because the U.S. expanded its definition of Russia’s military industry earlier this year, thereby widening the potential scope of Chinese firms that could get hit with secondary sanctions for doing business with Moscow.
As a result, Chinese banks have been reluctant to transfer yuan to Russian counterparts while servicing foreign trade payments, leaving transactions in limbo for months. With yuan liquidity drying up from China, Russian companies have tapped the central bank for yuan via currency swaps. . . .
https://fortune.com/2024/09/07/russia-economy-china-yuan-liquidity-shortage-us-sanctions-ukraine-invasion/