The yuan took: the dollar for the first time took less than 50% in Russia’s trade with the PRC

The share of the dollar in trade between Russia and China fell by five percentage points. in the first quarter of 2020 and reached a historic low of 46%, Izvestia calculated based on statistics from the Central Bank and the Federal Customs Service. For the first time, the American currency occupied less than half of settlements between the Russian Federation and the PRC. The positions of the national currencies and the euro also reached record highs: 24% and 30%, respectively. However, the share of the ruble remained almost unchanged and remained at the average level of 7% over the past three years. The trend of replacing the dollar with other currencies in trade with China will accelerate in the near future, but the Russian currency is still too volatile a currency to take a noticeable place in the calculations, experts say.

Dollar for 50

Five years ago, in 2015, about 90% of settlements between the Russian Federation and the PRC were made in dollars. But then the positions of the American currency began to weaken noticeably. At the end of 2016, the dollar took about 80% in the structure of settlements and subsequently lost about 3-4 pp. in year. In 2019, in fact, since the start of the trade wars between the United States and China, the situation has changed dramatically: as a result, the share of the dollar in settlements between Russia and China fell to 51%.

In 2020, the American currency continued to lose ground. In the first quarter, it occupied 46% of the Russian-Chinese trade turnover: for the first time, the share of the dollar was less than 50%. However, it was not the ruble that replaced the US currency – its share remained at an average level of 7% for the last three years.

The dollar was supplanted by the euro and the yuan. The euro took over 30% of settlements between the PRC and the Russian Federation, adding 8 pp. compared to the 2019 average. Yuan – more than 17% (plus 2 pp). For both currencies, this level is a record high.

The structure of settlements with other economic partners of the Russian Federation in 2020 also slightly changed. For example, Russia has been trading with Europe mainly in euros since 2016. Now its share is 46% (last year an average of 42%). The Russian currency in the first quarter of 2020 also began to be used more – in the turnover of the Russian Federation and the EU, the ruble took 18% (last year – 17%).

The Russian currency remained the main means of payment for settlements with the CIS countries, although it lost ground somewhat. The ruble took 60% of settlements with neighboring countries, a year earlier the figure was 63%.

In 2020, relations between the United States and the PRC, which had deteriorated over the past two and a half years of trade wars, escalated sharply. A group of US senators accused Beijing of hiding information about the coronavirus and introduced a bill providing for unprecedentedly tough sanctions, including freezing China’s assets in the States. At the same time, the PRC is one of the main investors in the economy of its rival. The republic owns US public debt in the amount of about $ 1 trillion.

In mid-July, Donald Trump signed into law a law imposing sanctions on China for his interference in Hong Kong affairs. The document provides for restrictions for organizations and individual citizens who took part in the development of the law on the national security of the region, as well as the abolition of its special status. Earlier, Hong Kong businesses and residents enjoyed certain preferences from the United States.

The PRC responded by imposing sanctions on the American non-governmental human rights organization Human Rights Watch (HRW), which, according to Beijing, supported the protest in Hong Kong.

Dangerous currency

This year, the risks of serious new sanctions against China have sharply increased, which may also affect trade, said Alexander Murychev, executive vice president of the Russian Union of Industrialists and Entrepreneurs. The republic is trying to minimize possible damage and transfer payments to other currencies: it is much more problematic for the US authorities to track transactions in yuan or euro, he explained.

In fact, this opens up unprecedented opportunities for strengthening the role of the ruble in trade with the Middle Kingdom, said Alexander Murychev. However, in practice, it is unlikely that it will be possible to take a noticeable place in the Russian currency with its current volatility. A more realistic alternative is to gradually move to settlements in digital currency.

A national cryptocurrency project is actively being implemented in China, recalled Alexander Murychev. In the Russian Federation, a law on digital financial assets is being adopted, which will bring the discussion about the economic role and status of virtual money to a new level, which will allow one way or another to introduce cryptocurrency into business circulation, he summed up.

Trade and currency differences between China and the United States are the main reason why Beijing has taken a course towards reducing the share of the dollar in settlements, Mikhail Klementyev, KPMG partner in Russia and the CIS, agreed. However, interest in trading for rubles is limited, he added. China is mainly interested in strengthening the position of the yuan, while it is still profitable for Russian exporters to receive foreign currency for settlements on their own loans, the expert explained.

However, the role of the dollar in Russia’s trade with the rest of the world will weaken. Provided that the volumes of import substitution continue to grow, and exporters begin to use the ruble more in their contracts, the share of the American currency in the structure of Russian external settlements may decrease to 30% in the next 5-10 years.

Izvestia appealed to the largest Russian financial institutions with a request to comment on the strengthening of the yuan’s position in trade between the Russian Federation and the PRC.

The head of cooperation with financial institutions in Asia, MKB, said that his bank is observing a steady increase in settlements in yuan among its clients. Last year, the share of the Chinese currency in trade with the PRC reached 11%, and this year it is projected to grow to 15%, the bank estimated. The interest in the Chinese currency will continue to grow, as well as to the currency for investments, according to the bank.

VEB reported that they are discussing a more active transition to settlements in national currencies with the development institutions of the SCO countries. In particular, it is planned to expand the practice of lending in national currencies, including for joint projects, to launch new financial instruments and mechanisms.

In the first quarter, the number of payments under import contracts in Chinese yuan increased by almost 50%, and their total amount increased by more than 70% compared to the same period last year, said Alexander Meshcheryakov, director of the PSB International Business Directorate. The trend towards the transition to national currencies will continue, and the use of the yuan seems to be the most convenient option for Chinese counterparties, so PSB expects a further increase in the share of such settlements, he added.

The press services of the Central Bank, the Ministry of Finance and the Ministry of Economic Development did not answer Izvestia’s questions about the reasons for the increase in the share of the yuan in trade with the PRC and the prospects for settlements in national currencies.