LONDON – China’s renminbi has replaced the US dollar as the most traded currency in Russia, a year after the invasion of Ukraine led to a slew of Western sanctions against Moscow. The renminbi surpassed the dollar in monthly trading volume in February for the first time, and the difference became more pronounced in March, according to data compiled by Bloomberg based on daily transaction reports from the Moscow Exchange. Before the invasion, the renminbi’s trading volume on the Russian market was negligible.
The switch comes after additional sanctions in 2023 affected the few banks in Russia that retained the ability to make cross-border transfers in US dollars and other currencies of countries branded “unfriendly” by the Kremlin. Raiffeisen Bank International, whose Russian branch remains one of the main conduits for international payments in the country, was among lenders that came under elevated pressure from the European and United States authorities.
Russia has deepened its ties with China since the February 2022 invasion prompted a break in relations with the West. In March, Chinese President Xi Jinping made Moscow his first visit abroad after his re-election, and promised the Kremlin expanded cooperation in areas including trade, investment, supply chains, mega projects and energy.
Sweeping sanctions targeting Russia’s financial system have forced the Kremlin and Russian companies to switch their foreign trade transactions from the dollar and euro to currencies of countries that have declined to join any restrictions.
The Russian Finance Ministry converted its market operations to the renminbi instead of the dollar earlier in 2023, and developed a new structure for the national wealth fund to hold 60 per cent of its assets in renminbi. The Bank of Russia regularly calls on companies and citizens to move their assets into the rouble or “friendly” currencies to avoid the risk of having them blocked or frozen.
Despite all that, the US dollar had remained the most popular currency on the Russian market until now, only rarely losing out to the renminbi in terms of volumes on any given trading day, according to exchange data compiled by Bloomberg.
Also, although the renminbi has been more popular in Russia, China’s capital account controls, as well as geopolitical concerns among global investors, remain a barrier as Beijing seeks to promote the currency’s usage overseas.
Global foreign exchange reserves allocation in the renminbi accounted for about 2.7 per cent of the total amount by the end of 2022, down from the peak at 2.9 per cent in the first quarter, International Monetary Fund data showed.
“Now there are fewer dollars on the market as Russia’s revenues decreased due to the oil price drop and a decrease in exports,” said Mr Iskander Lutsko, a strategist at ITI London. At the same time, “commodity imports from Russia to China are up by 29 per cent, although exports from China are stagnating”. BLOOMBERG
