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Chinese Yuan Overtakes US Dollar As Most Highly Traded Currency in Russia

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China’s yuan has overtaken the U.S. dollar as the most traded currency in Russia, a development that follows a year after the invasion of Ukraine and subsequent Western sanctions against Moscow.

 

According to Bloomberg data based on daily transaction reports from the Moscow Exchange, the yuan surpassed the dollar in monthly trading volume for the first time in February, and the gap widened in March. Prior to the invasion, the yuan’s trading volume in the Russian market was negligible.

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This shift occurred as further restrictions this year impacted some Russian banks that still had the ability to make cross-border transfers in dollars and other currencies from countries deemed “unfriendly” by the Kremlin. Raiffeisen Bank International AG, with its Russian branch being one of the main channels for international payments in the country, faced significant pressure from European and U.S. authorities.

Since the invasion in February 2022, Russia has strengthened its ties with China, resulting in a break from the West. Chinese President Xi Jinping visited Moscow in March, marking his first foreign trip since his re-election, and pledged cooperation with the Kremlin in areas such as trade, investment, supply chains, mega-projects, energy, and hi-tech.

 

The extensive sanctions targeting Russia’s financial system have compelled the Kremlin and Russian companies to shift their foreign trade transactions from the dollar and euro to the currencies of countries that have not joined the sanctions.

 

Earlier this year, the finance ministry converted its market operations to yuan instead of dollars and created a new structure for the National Wealth Fund, which now holds 60% of its assets in yuan. The Bank of Russia regularly encourages companies and citizens to transfer their assets to rubles or “friendly” currencies to mitigate the risk of them being blocked or frozen.

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Nonetheless, the dollar remains the predominant currency in the Russian market, seldom losing to the yuan in terms of volume on any given trading day, as per Bloomberg’s compiled exchange data.

“There are fewer dollars in the market now as Russia’s revenues fall due to a drop in oil prices and a reduction in exports,” said Iskander Lutsko, a strategist at ITI London. Meanwhile, “commodity imports from Russia to China have increased by 29%, although exports from China have remained stable.”