The Chinese yuan is rapidly gaining popularity in Russia amid Western sanctions over the war in Ukraine.
Traded on the Moscow Exchange, the coin has grown more than 50 times this year, jumping from 0.5% of all trades in January to 26% in August.
It is increasingly used in Russia’s international trade settlements, and some of the country’s largest companies have begun issuing renminbi bonds to raise capital.
Russians are also starting to hoard as more and more banks offer customers the option to open deposits in renminbi.
Individuals bought into a record high of 4.5 billion yuan ($0.6 billion) last month, according to data from Russia’s central bank.
Analysts say Russia’s pivot to the yuan could boost China’s ambitions to promote greater use of the international currency, while also helping Moscow bypass Western sanctions. West to remove it from the global financial system.
“The popularity of the yuan is due to the growing toxicity of the dollar and euro to people,” said Alexandra Prokopenko, an independent analyst who previously worked as an adviser to the Russian central bank. Russia.
“As a result of sanctions, Russian accounts abroad can be frozen at any time, not all foreign banks are willing to work with banks,” she explained. Russia and transactions involving dollars and euros take a lot of time to process.” “There is no such problem with the yuan.”
Immediately after President Vladimir Putin sent Russian troops into Ukraine, the United States and the European Union imposed sanctions targeting Russia’s central bank, sovereign wealth funds and a number of financial institutions. largest in the country.
The administration of US President Joe Biden also banned the export of dollar bills to Russia.
Russia has responded to these unprecedented sanctions by drawing closer to China.
In the first eight months of this year, trade between the two countries grew 31 percent to $117.2 billion, and officials predict that trade between the two countries will hit a record $200 billion by 2023.
Beijing has emerged as Moscow’s single largest energy customer, and Chinese companies have slowly begun to fill the gaps in the Russian market caused by the mass exodus of Western corporations.
“China is Russia’s biggest trading partner, so it makes sense that the demand for yuans is growing in the Russian market,” Prokopenko said. “Businesses need yuan to make trade deals because under current conditions it is easier to do it in yuan than in dollars or euros.”
Since the start of the war, Russia has become the third largest renminbi payments market outside of mainland China, accounting for nearly 4% of international payments involving Chinese currency in July, under the SWIFT payment system.
Earlier this month, state-owned energy conglomerate Gazprom and China National Petroleum Corporation Signed an agreement under which China would begin paying exclusively for Russian natural gas supplies in yuan and rubles.
A growing number of Russian giants are also looking to raise capital in Chinese currency.
Over the past two months, state oil company Rosneft, aluminum producer Rusal, gold miner Polyus and metallurgical company Metalloinvest have issued yuan-denominated bonds totaling 25.6 billion yuan. yuan ($3.7 billion).
Meanwhile, the Russian Finance Ministry has announced plans to issue sovereign bonds in Yuans, although it is widely expected that preparations for the issuance will take at least another year or two. .
Valery Yemelyanov, a stock market analyst at investment firm BKS Mir, told Al Jazeera that due to the high demand for the yuan in Russia, companies have accumulated a large amount of the currency. can sell it at a favorable interest rate.
“This is a fairly new experience for the Russian market, but a successful one so far,” he said. “Many companies are willing to bet on the yuan and plan their future business processes around it.”
Russian banks are also expanding their renminbi offerings.
State news agency RIA Novosti reported that Russians can now open accounts in yuan at 10 of the country’s 30 largest banks.
Earlier this month, VTB Bank and Alfa-Bank became the first two Russian banks to allow customers to transfer money to China in yuan without using the SWIFT international payment system.
Alexander Borodkin, head of savings and investments at Otkritie bank, says that the growing interest in the yuan is due to the Russian banking system’s efforts to devaluation of the dollar and euro.
He explained that banks have been actively trying to discourage customers from hoarding savings in dollars or euros by refusing to open new deposits in these currencies, offering low rates or charging Commission.
“The ideal option for the banking system is to ask all their customers to convert their dollars and euros into rubles, but since not everyone wants to do that, it is good to have renminbi. as an option for those who want to diversify their savings account,” he said.
Despite the yuan’s recent rally, serious questions remain about the ability of the Chinese currency to replace the dollar and euro for Russia.
BKS Mir’s Yemelyanov warned that since the yuan is not a freely convertible currency, the Russians could lose out if Beijing decides to weaken the currency.
Another problem is that the yuan is highly liquid and less convenient for investments, compared to the dollar or the euro.
“Aside from bonds and deposits, there really aren’t many other ways you can use the yuan in Russia,” he said. “So if a person has a substantial amount of capital, he will think 10 times about converting his resources from dollars and euros to yuan because not all he obviously has. can do with it then.”