Politics
Russian economy faces moment of truth over China's lifeline
That would threaten a key lifeline for Russian businesses, which have become heavily dependent on the yuan as trade with China intensified after President Vladimir Putin ordered the invasion of Ukraine in 2022. war triggered Western sanctions that largely excluded Russia from the global financial system. .
In June, the United States expanded its sanctions, forcing the Moscow Stock Exchange and its clearing agent to suspend trading in dollars and euros. A Treasury Department license that allows time for certain transactions to complete will expire on October 12.
While Russia has already turned away from Western currencies in favor of the yuan, additional U.S. sanctions could have knock-on effects on Chinese banks that conduct yuan transactions with Russia.
The situation could change after October 12, a source told Reuters. A sharp shortage of yuan or a complete refusal to accept payments from Russia by Chinese banks is possible.
Indeed, all conversion operations, including for subsidiaries of Chinese banks, will cease and all foreign exchange positions opened via the Moscow Stock Exchange will be closed, the report adds.
As a result, the situation regarding the supply of yuan liquidity will become even more difficult, the source told Reuters.
Additionally, the Russian subsidiary of Austrian bank Raiffeisen began refusing to make payments to China earlier this month, according to the report.
Liquidity of the yuan in Russia was already under strain after the United States expanded its definition of Russia's military industry earlier this year, widening the potential scope for Chinese companies to be hit with secondary sanctions for having does business with Moscow.
As a result, Chinese banks have been reluctant to transfer yuan to their Russian counterparts while handling foreign trade payments, leaving transactions in limbo for months. With yuan liquidity from China drying up, Russian companies have turned to the central bank for yuan through currency swaps.
But the Bank of Russia dashed hopes for increased liquidity, saying the swaps were only intended for short-term stabilization of the domestic currency market and were not a source of long-term financing.
Russian banks more than halved their swap borrowings, which fell on Wednesday to 15.4 billion yuan ($2.19 billion) from their peak of 35.2 billion yuan in early September, according to Reuters.
We cannot lend in yuan because we have nothing to cover our foreign currency positions, German Gref, CEO of Russia's main bank Sberbank, said at an economic forum earlier this month.
For now, Russia's war spending as well as oil exports to China and India have helped support the overall economy. But the combination of busy factories and labor shortages due to military mobilizations further fueled inflation. Meanwhile, Russia is suffering from a worsening demographic crisis.
Researchers led by Yales Jeffrey Sonnenfeld warned in August that the seemingly robust GDP data masked deeper problems in the economy.
As the defense industry grows, Russian consumers are increasingly in debt, which could pave the way for a looming crisis, they write. Excessive emphasis on military spending crowds out productive investment in other sectors of the economy, stifling prospects for long-term growth and innovation.
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Sources 2/ https://fortune.com/2024/09/29/russia-economy-lifeline-china-yuan-fx-moscow-exchange-us-sanctions-ukraine-war/ The mention sources can contact us to remove/changing this article |
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