That would threaten a vital lifeline for Russian companies. Russian companies have become heavily reliant on the yuan as trade with China has increased since President Vladimir Putin ordered the invasion of Ukraine in 2022. The war triggered Western sanctions that largely shut Russia out of the global financial system. .
In June, the United States expanded sanctions, forcing the Moscow Exchange and its clearinghouse to suspend trading in dollars and euros. The Treasury license, which gives time to wind down some deals, expires on October 12.
Russia had already taken a stance favoring the renminbi over Western currencies, but additional U.S. sanctions could have a knock-on effect on Chinese banks that do business with Russia.
“The situation may change after October 12,” a source told Reuters. “There could be a sudden shortage of the renminbi, or Chinese banks could completely refuse to accept payments from Russia.”
The reason for this is that all currency exchange operations, including those of Chinese banks’ subsidiaries, will be suspended, and all open foreign exchange positions through the Moscow Exchange will also be closed, the report added.
“Therefore, the liquidity situation for the renminbi will become even more difficult,” the person told Reuters.
In addition, the Russian arm of Austria’s Raiffeisenbank began refusing payments to China earlier this month, the report said.
Russia’s yuan liquidity was already tight after the US expanded its definition of Russia’s military industry earlier this year, expanding the range of Chinese companies that could be subject to secondary sanctions for doing business with Russia. Ta.
As a result, Chinese banks have been reluctant to transfer renminbi to Russian banks to pay for foreign trade, and transactions have been stalled for months. As renminbi liquidity from China dried up, Russian companies raised renminbi from the central bank 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 long-term source of funding.
Russian banks have more than halved their swap borrowings, falling to 15.4 billion yuan ($2.19 billion) on Wednesday from a high of 35.2 billion yuan in early September, Reuters reported.
“We cannot lend in renminbi because we have nothing to cover our foreign currency positions,” German Gref, CEO of Sberbank, a major Russian financial company, said at an economic forum earlier this month. .
For now, Russia’s war spending and oil exports to China and India are supporting the overall economy. However, the combination of busy factories and labor shortages due to military mobilization caused inflation to accelerate further. Meanwhile, Russia is suffering from a severe demographic crisis.
Researchers led by Yale University’s Jeffrey Sonnenfeld warned in August that seemingly robust GDP data was masking deeper problems in the economy.
“While the defense industry is expanding, Russian consumers are becoming increasingly indebted, potentially setting the stage for an impending crisis,” they write. “An over-emphasis on military spending crowds out productive investment in other areas of the economy, stifling long-term growth prospects and innovation.”
