Page 19 - RusRPTSept22

dollars and euros are in the process of dumping them, as they are unable to spend them afraid of sanctions freezing these assets.
As Russia’s biggest single trade partner, the yuan holds pride of place in Russia’s foreign exchange markets. The volume of yuan traded in July was up 8pp to reach circa 20%, or RUB890bn ($14.6bn), Kommersant reports. At the start of this year the yuan trading volumes accounted for a mere 0.5% of the Exchange’s turnover.
The yuan trading has been overtaking the volume of euro trading and on occasion in July overtook it in terms of volume of trading.
The shares of other exotic currency trading are far smaller. The Hong Kong dollar and the “friendly” Kazakh tenge are relatively popular, but the volumes traded are two orders of magnitude smaller: traded volumes in July were RUB4.8bn and RUB4bn respectively. The volumes of two more of Russia’s key trade partners, the Turkish lira or the Belarusian ruble, see even smaller volumes: RUB2.6bn and RUB1bn respectively.
“The growing popularity of the yuan is a consequence of the rapid decline in the role of the now "toxic" dollar and euro in all aspects of Russia's economic activity,” The Bell comments. “Part of this trend is the de-dollarization policy of the Central Bank, as well as banks and brokers that have introduced commissions for foreign currency accounts.” Another factor driving the trade is imports have started to recover after coming to an almost standstill in March after the Russian invasion of Ukraine. According to Chinese data, in the first half of the year trade with Russia grew by 29% y/y to $97.7bn.
China remains top dog as Russia’s biggest trade partner and is on
course to maintain the $100bn trade turnover of recent years, but aspires to double their mutual trade to $200bn in the coming years. In 2021, trade between
the two countries totalled $174bn, up 36% on the year before and if trade volumes maintain the same pace set in the first half of this year, the goal of reaching $200bn of mutual trade should be achieved.
The importance of the yuan is expected to only include due to a variety of factors including: the arrival of Chinese companies (especially state-owned) on the Russian market looking to buy cheap assets; the resumption of investment imports, the first signs of which are already seen by the Central Bank; overall growth in trade with China, which by the end of the year may reach $185-190bn, according to the CBR; adaptation to the yuan of the Russian exchange infrastructure (in the segment of swaps, the yuan is already on an equal footing with the dollar).
Given that funds held in dollars and euros can be frozen at any time, the yuan in Russia naturally becomes not only an alternative for settlements and risk hedging, but also an important part of the financial system.
Banks are already massively offering deposits in yuan (at 1-2% per annum), and Russian companies like the Hong Kong listed aluminium producer Rusal have started to borrow in the Chinese currency on the domestic market.
19 RUSSIA Country Report September 2022 www.intellinews.com