Russia is overstocked with yuan
To limit the impact of Western sanctions, the Central Bank, from July 15, suspended the publication of daily information on trading volumes in the US dollar, euro and yuan against the ruble based on over-the-counter trading with settlements «Tomorrow». The Bank of Russia began disclosing such statistics in April in addition to monthly data on transactions in the domestic over-the-counter market to increase transparency. However, the sanctions imposed on June 12 by the United States against the Moscow Exchange and its subsidiaries led not only to the suspension of exchange trading in dollars and euros, but also negatively affected the regulator’s desire to maintain such openness. How the latest news will affect the foreign exchange market, how the ruble exchange rate will change and whether domestic businesses will be able to overcome problems with payments to China, Maxim Osadchiy, head of the analytical department of BKF Bank, told MK.
— I don’t see any particular benefit in hiding the volume of yuan trading, but the fact that they hid information about over-the-counter trading in dollars and euros is understandable, since the main blow of the new sanctions on June 12 fell precisely on the destruction of non-cash trading in dollars and euros.
— At the front, they also resort to camouflage, trying to make important objects “invisible” to the enemy in order to avoid attacks on them.
— On Friday, July 12, exactly one month after the introduction of a new package of American sanctions, the Russian government softened requirements for the mandatory repatriation of foreign currency earnings. Previously, exporters were required to credit at least 60% of foreign currency received under foreign trade contracts to their accounts in authorized banks. Now this threshold has been reduced to 40%. The requirement for mandatory repatriation of foreign currency and sale of foreign currency earnings was introduced by decree of Russian President Vladimir Putin in October 2023 to ensure exchange rate stability and the stability of the Russian financial market.
However, after the introduction of sanctions on June 12, requirements for the mandatory sale of foreign currency earnings by exporters began to contribute to the destabilization of the exchange rate and a decrease in the stability of the foreign exchange market. The ruble exchange rate began to strengthen sharply, as foreign banks, primarily Chinese, began to even more actively refuse to accept payments from Russia due to the threat of secondary sanctions. It is possible that the easing of requirements for the mandatory sale of foreign currency earnings will continue this year until this measure is completely abandoned.
— In conditions of geopolitical conflict, the ruble is doomed to weaken. As the liquid assets of the National Welfare Fund (NWF) are depleted, the printing press will work more and more actively.
— The key one. Russian entrepreneurs doing business with China were faced with the fact that they stopped making payments to local counterparties through a branch of the second largest Russian bank in terms of assets in Shanghai. According to Russian media reports, Chinese suppliers cannot receive money sent by Russian counterparties after June 20. The funds reach the branch, but then get stuck.
— Yes, it is precisely because of the threat of secondary sanctions that Chinese banks refuse to accept payments from Russia. As practice shows, this problem cannot be solved even with the help of branches of Russian banks in China, especially since all of them are under sanctions. As a result, Russian-Chinese trade operates in a one-way mode: from China to Russia, yuan flows like a wide river — mainly for the export of raw materials, but back, from Russia to China, the yuan river is rapidly shallowing, imports from the Middle Kingdom are declining. As a result, the ruble is strengthening, but there is little benefit for the Russian economy from this strengthening: both the budget and exporters suffer from it.
— Indeed, in trade with India there was also an “overstocking” of illiquid rupee — Indians actively increased purchases of oil from Russia, but sales of goods from India were disproportionately small due to the lack of demand from Russian buyers. So in trade with China we are stepping on the “Indian rake”. Although, of course, this effect in the case of China is much weaker.
In the first half of 2024, the Russian Federation’s foreign trade surplus (the difference between exports and imports) increased to $67.8 billion compared to $56.8 billion in the first half of the year 2023 with a more significant decrease in imports than exports: exports decreased by only $2.8 billion, and imports by $13.8 billion. So the unilateral regime in Russian foreign trade is becoming more and more obvious.
< /p>
—Switch to payments in cash, gold and cryptocurrencies, use barter.
—Neither the Ministry of Finance nor exporters are interested in strengthening the ruble. In addition, the budget deficit can be largely financed by the printing press, which contributes to the weakening of the national currency. So a reversal of the trend in the foreign exchange market is inevitable, the rate will again move to the level of 100 rubles per dollar that has already been repeatedly reached previously.