By Thalia Kattoura | Staff Writer
Amidst Western sanctions following Russia’s invasion of Ukraine, the government has adopted the Chinese yuan as one of its main currencies for international reserves and overseas trade.
Xi Jinping has long wanted to extend the influence of the Chinese yuan in hopes of challenging the reign of the US over the global economy. However, collaboration from other global influences did not seem likely – as Beijing has an extensive economic history of currency devaluations and the US dollar continued to be stable in the hands of traders.
Nonetheless, the world has grown to become more sympathetic to the idea of a multipolar currency world. Oil trades between Saudi Arabia and China are being paid for using the renminbi, and some Indian companies have also started to pay for commodities using the currency.
At the New Development Bank in Shanghai, President of Brazil Lula Inacio Lula de Silva began advocating for the usage of alternative currencies: “Who decided that our currencies were weak, that they didn’t have value in other countries… Why can’t we trade based on our own currencies?”
Things are looking up for Xi, and Russia – in addition to other global players – might just be enough to get the ball rolling. Russia’s share of the total use of the renminbi is among the highest as Russian companies continue to purchase commodities using the Chinese yuan. Vladimir Putin endorsed the international use of the Chinese currency; in a meeting with Xi, Putin attested that he supported “the use of the yuan in payments between Russia, and countries of Asia, Africa, and Latin America”
Russian banks have incentivized their clients to consider saving in renminbi-denominated deposits by offering them high interests rate – higher than those offered by dollar-denominated deposits.
The central bank increased its share of renminbi currency reserves from 13% to >17%. While this is unusually high with respect to other CBs, as IMF statistics show, Russia’s Western sanctions leave it no choice. And while the Chinese yuan is known for its fluctuation, Russia has put all of its eggs in one basket – which can have horrific consequences for its reserves.
It appears that the Chinese yuan is making its way to the top – but experts say that it is too soon to tell. Matteo Maggiori, professor of finance at Stanford Graduate School of Business, attested that “If Beijing decides to devalue its currency overnight, which it has done before, Russian reserves go down, trade contracts are disrupted — and Moscow can do nothing about it.”