China’s yuan has replaced the United States Dollar (USD) as the most traded currency in Russia. This comes a year after Western sanctions were imposed on Russia over its invasion of Ukraine in February 2022.
In February this year, the yuan surpassed the dollar in monthly trading volume for the first time, and this trend continued in March, according to data from the Moscow Exchange.
Before the invasion, the yuan’s trading volume in the Russian market was insignificant, Bloomberg reported.
What changed: This change is attributed to the additional sanctions that have been placed on some of Russia’s banks this year, which have limited their ability to make cross-border transfers in dollars and other currencies from countries considered “unfriendly” by the Kremlin.
How is China’s Yuan involved: Russia has deepened its ties with China since the February 2022 invasion, prompting a break with the West. In March, Chinese President Xi Jinping made his first foreign trip to Moscow since his re-election and promised the Kremlin cooperation in the areas of trade, investment, supply chains, mega-projects, energy and hi-tech.
How does decrease US Dollar Influence: Sanctions targeting Russia’s financial system have forced the Kremlin and Russian companies to switch their foreign trade transactions from the dollar and euro to the currencies of countries that have refused to join any of the sanctions.
The finance ministry earlier this year 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.
Results: Despite all this, the USD remains by far the most popular currency in the Russian market, rarely losing to China’s Yuan as the most traded currency in Russia on any day, according to exchange data compiled by Bloomberg.
Iskander Lutsko, a strategist at ITI London says 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.
Russia has actually increased exports to China by 29% but exports from China have remained stable.