In a significant development for global currency markets, the Chinese yuan has overtaken the US dollar as the most-traded currency in Russia. The shift in trading volumes occurred in February, one year after the US and EU imposed sanctions against Russia following its invasion of Ukraine. The yuan’s lead over the dollar in trading volumes increased in March, according to data compiled by Bloomberg. Prior to the invasion, the yuan’s trading volume in the Russian market was negligible.
The increased use of the yuan in Russia can be attributed to China’s deepening economic ties with Russia since the invasion. Moscow has pivoted towards Asia, forging closer ties with Beijing after being isolated by the West. Chinese President Xi Jinping’s recent visit to Moscow was aimed at further strengthening ties between the two countries in the areas of trade, investment, supply chains, mega-projects, energy and hi-tech.
The Russian government and businesses have been gradually shifting away from the dollar and euro since the sanctions were imposed. Widespread sanctions targeting Russia’s financial system have forced the Kremlin and Russian companies to switch their foreign trade transactions to the currencies of countries that have refused to join any of the sanctions. The finance ministry has switched its market operations to yuan instead of dollars and developed a new structure for the National Wealth Fund to hold 60% of its assets in yuan. The Bank of Russia regularly asks companies and citizens to transfer their assets to rubles or “friendly” currencies to avoid the risk of them being blocked or frozen.
The shift towards the yuan has also been driven by a drop in Russia’s revenues due to a drop in oil prices and a reduction in exports. There are fewer dollars in the market as a result. At the same time, commodity imports from Russia to China have increased by 29%, although exports from China have remained stable.
Despite the yuan’s recent gains in Russia, the dollar remains by far the most popular currency in the Russian market, rarely losing to the yuan in terms of volume on any given trading day, according to exchange data compiled by Bloomberg. In conclusion, the yuan’s overtaking of the dollar as the most-traded currency in Russia is a significant development in global currency markets, highlighting China’s growing economic power and Russia’s increasing economic ties with Asia. It remains to be seen whether this trend will continue, but it is clear that the use of the yuan in Russia is likely to increase in the coming years.
