Traded on the Moscow Stock Exchange, the currency has risen more than 50-fold this year, jumping from 0.5% of total trading in January to 26% in August. It is increasingly used in Russia’s international trade settlements, and several of its biggest companies have begun issuing yuan-denominated bonds in a bid to raise capital. Russians have also started stockpiling as a growing number of banks offer customers the option to open yuan deposits. Private individuals bought a record 4.5 billion yuan ($0.6 billion) last month, according to data from Russia’s central bank. Analysts said Russia’s move to the yuan could boost China’s ambitions to promote greater international use of its currency, while also helping Moscow circumvent Western sanctions aimed at cutting it off from the global financial system. “The popularity of the yuan is due to the increasing toxicity of the dollar and the euro for Russians,” said Alexandra Prokopenko, an independent analyst who previously worked as an adviser to the Russian central bank. “As a result of sanctions, Russian accounts abroad can be frozen at any time, not all foreign banks are willing to cooperate with Russian banks, and transactions involving dollars and euros take a long time to process,” he explained. “There are no such issues with the yuan.” Shortly after President Vladimir Putin ordered Russian troops into Ukraine, the United States and the European Union imposed sanctions on Russia’s central bank, sovereign wealth fund and many of the country’s biggest financial institutions. US President Joe Biden’s administration also banned the export of dollar notes to Russia. Russia responded to these unprecedented sanctions by moving even closer to China. In the first eight months of this year, trade turnover between the two countries rose 31 percent to $117.2 billion, and officials have predicted it will reach a record $200 billion before 2023. Beijing has emerged as Moscow’s biggest energy customer, and Chinese companies have slowly begun to fill the gaps in the Russian market created by the mass exodus of Western companies. “China is Russia’s largest trading partner, so it makes sense that there is a growing demand for yuan in the Russian market,” Prokopenko said. “Businesses need yuan to make trade settlements because under current conditions, it is easier to do so in yuan than in dollars or euros.” Since the start of the war, Russia has become the third-largest market for yuan payments outside mainland China, accounting for nearly 4% of international settlements involving the Chinese currency in July, according to the SWIFT payments system. Earlier this month, state energy giants Gazprom and China National Petroleum Corporation signed an agreement under which China will begin paying for Russian gas supplies exclusively in yuan and rubles. A growing number of Russian corporate giants are also seeking to attract financing in the Chinese currency. In the past two months, state oil group Rosneft, aluminum producer Rusal, gold smelter Polyus and metals firm Metalloinvest have issued yuan bonds worth a total of 25.6 billion yuan ($3.7 billion). Meanwhile, Russia’s finance ministry announced plans to issue yuan-denominated government bonds, although preparations for the placement are widely expected to take at least another two years. Valery Yemelyanov, stock market analyst at investment firm BKS Mir, told Al Jazeera that due to high demand for the yuan in Russia, companies that had accumulated large amounts of the currency were able to sell it at a favorable rate. “This is a fairly new experience for the Russian market, but a successful one so far,” he said. “Many companies are willing to bet on the yuan and plan their future business processes around it.” Russian banks have also moved to expand their yuan offerings. Russians can now open yuan accounts at 10 of the country’s 30 largest banks, state news agency RIA Novosti reported. Earlier this month, VTB Bank and Alfa-Bank became the first two Russian banks to allow customers to send money to China in yuan without using the SWIFT international payment system. Alexander Borodkin, head of the savings and investment unit at Otkritie bank, said this growing interest in the yuan was due to efforts by the Russian banking system to ditch the dollar and euro. He explained that banks were actively trying to discourage customers from storing savings in dollars or euros by refusing to open new deposits in those currencies, offering low interest rates or charging commissions. “The ideal option for the banking system is for all its customers to convert their dollars and euros into rubles, but since not everyone wants to do that, it is good to have the yuan as an option for those who want to diversify their savings account,” he said. Despite the yuan’s recent momentum, serious questions remain about the Chinese currency’s ability to replace the dollar and euro for Russia. BKS Mir’s Yemelyanov warned that because the yuan is not a freely convertible currency, Russians could lose out if Beijing decides to weaken the currency. Another problem is that the yuan is liquid and less convenient for investment, compared to the dollar or the euro. “Other than bonds and deposits, there really aren’t many other ways you can use the yuan in Russia,” he said. “So if a person has significant capital, they will think 10 times to convert their resources from dollars and euros to yuan because it is not so clear what they can do with it afterwards.”
