Page 18 - RusRPTAug23

foreign investment, mainly from Asia, to make up for a lack of FDI from Western countries and also its limited domestic investment capacities.
2.1 Yuan’s growing role in Russian economy
As a result of sanctions and the decision by many Western firms to sever ties with Russia, most major Russian banks no longer can handle payment traffic in dollars and euros. During the war, Russia has tried to move away from the main global trading currencies in its foreign trade. President Vladimir Putin has decreed, for example, that natural gas contracts should be invoiced in rubles. To develop a new export customer base, Russia is offering deep discounts in crude oil and petroleum products, with the option of paying for the purchases in other currencies.
For the first time since Russia’s invasion of Ukraine last year, the Central Bank of Russia has released a breakdown of Russia’s foreign trade payments. According to the data, the share of currencies of “unfriendly” countries (mainly the US dollar and euro) in invoicing exports of goods and services had declined to about a third, while the ruble’s share had climbed to nearly 40%. All other currencies accounted for just under 30%.
There has been a substantial change over the past two years. Before the invasion, the combined share of the dollar and euro in export invoicing was about 85%, with the ruble’s share at just over 10%. The “other currencies” category, which includes the Chinese yuan, the Indian rupee and the UAE dirham, was close to zero, but today exceeds 25%. The “other currencies” component is especially large for Russian exports to countries in Asia (34%) and Africa (32%). Elsewhere, “other currencies” are rarely used in trade with Russia. The trading currency data release in conjunction with the CBR’s latest financial market stability report suggest that Chinese yuan’s portion of the “other currencies” in payments was overwhelming. Indeed, the yuan’s share in export invoicing already reached 25% in May.
The data also fit with reporting on the shift in oil exports to Asia (including China and India) to the use of currencies other than the US dollar in payment. It is worth remembering that Russia’s main export products are still basic commodities, the price of which at generally set in US dollars. Therefore, in many cases, the invoicing currency in Russian exports differs from the currency used in price-setting. Moreover, payment of oil & gas taxed to Russia’s federal budget are still based on oil prices in US dollars. The US dollar remains unchallenged as the global reserve and pricing currency, so even large changes in Russia’s foreign trade practices can only have a negligible impact.
Yuan increasingly used as invoicing currency for Russian imports
With the shift in geographic emphasis of Russian imports to Asia, the use of the yuan as an invoicing currency has grown significantly. Prior to the war, the dollar’s share of imports was about 35%, the euro’s share approximately 30% and all other currencies only a few% at most. In May, the combined share of the dollars and euro in import invoicing was only a bit more than a third, while
18 RUSSIA Country Report August 2023 www.intellinews.com