«Foreign exchange transactions will become more expensive»
The yuan has become “the main currency in exchange trading,” the Central Bank said, and there is no doubt about this after American sanctions against the Moscow Exchange, which led to an actual ban dollar and euro. But at least two global questions arise here. First: what risks and inconveniences does this uncontested status of the yuan create for market participants, ordinary Russians, the economy and foreign trade? Second: can the Chinese national currency become a full-fledged and equivalent replacement for the American dollar for the population — purely in a practical, applied sense?
“The yuan/ruble exchange rate will set the trajectory for other currency pairs and will become a reference point for market participants,” the Central Bank notes, recalling that over the past two years the role of the dollar and euro in the Russian financial system has consistently declined. “This is the result of a redirection of trade flows to the East and a change in the currency of settlements to rubles, yuan and other currencies of friendly countries. The share of the yuan in Moscow Exchange trading in May was 54%,” reports Elvira Nabiullina’s department.
The June sanctions of the US Treasury, which put an end to exchange trading in dollars and euros in Russia, actually consolidated the monopoly of the yuan on the Moscow Exchange. But at the same time, it does not seem that the Chinese currency has a chance in the foreseeable future to conquer the broad masses, to enter the everyday lives of millions of people as confidently as the dollar did decades ago. Not to mention the risks and costs that are a priori associated with its use and circulation in the Russian Federation in various fields.
“If all foreign exchange transactions take place through the yuan, that is, through the cross rate to the dollar, this will lead to their rise in price. In essence, we pay for mediation,” says Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences. – We should not forget about the specific shortcomings of the Chinese currency itself. The yuan exchange rate can only be called a conditionally market one: it is unpredictable, dependent on the will of the top officials of the Communist Party and the strict regulation of the People's Bank of China. The relatively weak yuan brings Beijing higher export revenues. Other potential risks are associated, in particular, with the slowdown of the Chinese economy and the deterioration of trade and economic relations between China and the West. A striking example is the increase in customs duties on Chinese electric cars by the Americans and Europeans.”
There are also few advantages in the lack of alternative that the yuan represents for Russia. It turns out, Nikolaev argues, that of the main international currencies there is only one left, and it is far from the most liquid and convenient. For China, this is an additional argument in disputes with us on such inconvenient issues as the price of gas — its negotiating positions, already powerful, have strengthened even more. Beijing is well aware that now the Russian economy’s dependence on the Chinese economy (which, by the way, is in decline) will increase even faster. As for the purely consumer value of the yuan for citizens of the Russian Federation, it is still globally inferior to the dollar: people do not yet see it as a full-fledged replacement for the “American” as a universal equivalent of the cost of goods and services.
“It is clear that in the absence of the opportunity to buy dollars and euros, investors who are accustomed to keeping part of their funds in foreign currencies reoriented to the yuan as the closest most understandable currency,” says Alexander Shneiderman, head of the sales and customer support department at Alfa-Forex. – This corresponds to the state policy. In recent months, the Bank of Russia and the Ministry of Finance have been influencing exchange rates through the purchase and sale of yuan. The yuan may well become the main substitute currency, which will be in use among Russians in the same way as dollars and euros were recently. This is largely due to the policy of banks: they offer deposits in yuan at high rates — on average 5%. Against the backdrop of 0.5% rates on dollars and euros, this instrument is expected to lure away investors focused on storing funds in foreign currency.”
The problem, according to Shneiderman, is that determining the exchange rate of the ruble against the yuan without participation dollar is impossible: the dollar equivalent will invisibly continue to dominate currencies that are weakly tied to exchange instruments. China is an extremely closed country in terms of transparency of government and corporate processes and results: official and actual figures can differ tenfold.
Meanwhile, the yuan is far from having a leading position in the global foreign exchange market: today its share in the system of international payments is 3.71%, while the dollar has 46.6%, recalls Nikita, a leading expert at the Center for Political Technologies Maslennikov. As for the demand among Russians for yuan cash, it is still moderate: this money is needed only by those heading to China, and it makes sense to keep it “under the mattress” only as a speculative asset. People have about 90 billion cash dollars in their hands, ten times less yuan.