Wang Min, a Chinese entrepreneur, is overjoyed by Russia’s embrace of the yuan. His LED lighting company can charge Russian consumers in yuan rather than dollars or euros, and they may also pay him in yuan. He calls it a “win-win.”
The conflict in Ukraine and following Western sanctions on Moscow have altered Wang’s plans, cutting Russia’s banks and many of its firms off from the dollar and euro payment systems.
His contract manufacturing business with Russia has hitherto been limited, but he plans to invest in warehouses there.
“We expect that sales in Russia will account for 10-15% of our overall sales next year,” said the businessman from China’sChina’s southern coastal province of Guangdong, whose yearly turnover of around $20 million is primarily from Africa and South America.
Wang hopes to profit from Russia’sRussia’s fast “quantization” this year as the isolated country seeks financial stability from Asian superpower China. He sees a win-win situation in which Chinese exporters reduce their currency risks and Russian purchasers find payment more convenient.
While the yuan, or renminbi, has been slowly making its way into Russia for years, the crawl has turned into a sprint in the last nine months as the currency has cleaned into the country’s markets and trade flows. According to a Reuters review of data and interviews with ten business and finance players.
Russia’s financial push eastwards could promote cross-border trade, provide a growing economic counterbalance to the dollar, and restrict Western economic pressure on Moscow.
Last month, total transactions in the yuan-rouble pair on the Moscow Exchange reached around 9 billion yuan ($1.25 billion) each day, according to exchange data seen by Reuters. Previously, they rarely surpassed 1 billion yuan in a single week.
“According to Andrei Akopian, managing director of Moscow-based investment firm Caderus Capital, what happened was that holding traditional currencies such as the dollar, euro, and British pound became dangerous and expensive. Akopian cited the potential risk of a bank being penalize for holding foreign currency deposits.
Everyone was encouraged to use the rouble or other currencies, most notably the renminbi, and was even pushed in that direction.
According to exchange data, yuan-rouble trading totalled 185 billion yuan in October, more than 80 times the level observed in February, when Russia initiated what it refers to as a “special military procedure” in Ukraine almost the end of the month.
The yuan’s participation in the currency market has risen to 40-45% from less than 1% at the start of the year, according to Dmitry Piskulov, international projects head at the Moscow Exchange’sExchange’s foreign-exchange market department.
In comparison, the dollar/rouble pair, which also commanded more than 80% of trading volumes on the Russian market in January, had dropped to around 40% as of October to exchange data from the central bank.
RUSSIAN GIANTS WANT YUAN
International money flows follow a similar pattern.
Data from the international financial networking system SWIFT shows that up until April, Russia didn’t even rank among the top 15 nations outside of mainland China that use the yuan in terms of the value of inbound and outward transactions.
It has since climbed to No. 4, trailing only Hong Kong, Singapore, and Britain, the city’s previous colonial master.
As of September this year, the dollar and the euro represent more than 42% and 35% of flows and are still the most widely use currencies globally. The yuan increased from less than 2% two years ago to about 2.5%.
Shen Muhui, the leader of a trade organization for small exporters to Russia in the neighbouring Fujian province, echoes Wang’sWang’s economic confidence. He claimed it was a significant advantage because many Russian purchasers opened yuan accounts and settled deals in the Chinese currency.
Shen claimed that the conflict between Russia and Ukraine had given Chinese entrepreneurs new chances and that his organization had received multiple inquiries from Chinese businesses interested in doing business in Russia.
The yuan train is being board by more than just Chinese or small businesses.
Reuters estimates that seven large Russian businesses, including Rusal, Rosneft, and Polyus, have raised a total of 42 billion yuan in bonds on the Russian market. Major lenders Sberbank (SBER.MM) and Gazpromneft have said they are also considering renminbi loans, so the list may grow.
Rusal, a manufacturer of aluminium, told Reuters it had increased the yuan used in those purchases and sales this year and that the share would continue to rise. However, it declined to provide a detailed breakdown. Rusal imports raw materials from China, where a sizable share of its complete items is also sold.
ABUNDANCE OF RENMINBI’
Some Russian brokerages stated that their clients were maintaining a growing percentage of their assets in yuan, according to Akopian at Caderus Capital.
The influxes have caused curiosity rates on yuan deposits in Russia to drop significantly. According to Russian financial aggregators and significant Chinese banks, they range from 0.01% to 2.45% for one-year yuan deposits in Russia as opposed to 1.6% for one-year deposits on the mainland.
The majority of Russian banks currently allow you to open a renminbi account. Because investors have a lot of yuan in their pockets, interest rates are relatively low, Akopian continued. “As a result, whenever a new renminbi product enters the market, it quickly becomes highly well-liked. There is a lot of demand.
Small Russian savers also join the movement to protect themselves from rouble volatility.
Andrey, a communications expert from Moscow who claims he moved to Dubai in September to avoid being draft to fight in Ukraine, made online purchases of yuan and dirhams through his Russian bank as a preventive measure before he departed.
“I can convert my roubles into these alternate currencies, but doing so would be more like buying stocks or bonds.”