What does dependence on the yuan mean for the Russian economy?

The Central Bank recognized dependence on the yuan. In its annual report, the regulator indicated that the Chinese currency plays a key role in the formation of reserves. Moreover, the volume of reserves themselves and the share of the yuan in them was called “sufficient” by the Central Bank to maintain financial stability. At the same time, the Central Bank warned about limited opportunities for asset diversification. It will not be possible to store a significant part of them in the currencies of other friendly countries due to the risks inherent in these states. We are talking, in particular, about high volatility and low liquidity in local markets and obstacles to the movement of capital.

What does dependence on the yuan mean for the Russian economy? “Kommersant FM” discussed this with the chief economist of Raiffeisenbank Stanislav Murashov: “There is still gold, which diversifies the currency risk from the yuan, including a certain volatility.

Of the options that are now available to us, the situation is quite good. Plus, you need to understand that other non-convertible currencies carry more risk than the benefits of diversification. Therefore, the currency of the world’s first economy—Chinese—should play a stabilizing role in some sense. In the current environment, the best option is the yuan and gold.

We are now in a situation where there are not many options. If we take this into account, the situation with reserves is quite normal. At the same time, in international trade the ruble has a large share in trade turnover. There is a metric that shows the country’s protection from some external shock – this is how many months international reserves will last to finance imports.

We have a fairly significant share of rubles in imports; we have become more protected in this area than before.”

However, the Central Bank itself admits that the use of yuan carries certain risks for the economy. Recently, the regulator updated the stress test program for non-state pension funds. Organizations will now test for stability in conditions of high volatility of the yuan, when its exchange rate increases by 14% or decreases by 3%. The Central Bank called this scenario “a serious but probable shock.” Economist and author of the “Chinese Threat” project Nikita Mitrofanov agrees with the regulator’s assessment:

“The yuan is not a complete alternative to the dollar for the simple reason that the dollar is an international reserve currency. And its pricing is absolutely market-based, which cannot be said about the Chinese yuan. The courses are administered by the Chinese government. For example, the PRC is now considering a new way to expand its own production, trying to produce as many goods as possible in order to direct them not to the domestic market, which is stagnating, but to the external one.

China is ready to sponsor all this, and in order to achieve the greatest competitiveness, the yuan may at some point want to weaken significantly. Accordingly, the liquid part of the Central Bank’s reserves will also weaken against the dollar. Our reserves will become less reliable.

And in principle, the position that we are the only ones left with the yuan is some leverage of China’s pressure on the Russian economy.”

The regulator also noted the growing role of the yuan in foreign trade: its share in the export revenue of domestic companies increased to almost 36%, and in payments for imports – to 37%. The trust of individuals in the Chinese currency has also changed. According to credit institutions, Russians now keep about a quarter of their savings in yuan.

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Ivan Khorushevsky