Russia is currently grappling with a significant yuan liquidity crisis, driven by soaring demand for yuan-denominated loans amidst a backdrop of rising interest rates in rubles, which have reached nearly 20%. By May 2024, yuan transactions accounted for an impressive 54% of trades on the Moscow Exchange, a figure that surged to 99.8% following the imposition of Western sanctions [2ebad97b]. The average business loan rates in rubles have been reported at 17.17% for short-term loans and 14.74% for long-term loans, while yuan loans offered more favorable rates of 7.11% and 8%, respectively [2ebad97b].
The liquidity crisis peaked in September 2024, with one-day repo rates in yuan exceeding 212%, indicating a severe shortage of available yuan in the market [2ebad97b]. In response to this crisis, the Central Bank of Russia raised swap limits from 10 billion yuan to 30 billion yuan to help alleviate the liquidity issues [2ebad97b]. However, the situation has been further complicated by sanctions imposed on Russia's National Clearing Center in July, which have led to delays in payments and hindered the flow of yuan [2ebad97b].
Sberbank executive Taras Skvortsov has warned that there may be potential halts in yuan trading on the Moscow Exchange following October 12, 2024, which could exacerbate the liquidity crisis [2ebad97b]. Additionally, the ruble has depreciated by about 15% since late August, increasing costs for Russian consumers and further straining the economy [2ebad97b].
The ongoing reliance on the yuan for international transactions has been a double-edged sword for Russia, especially as the country seeks to mitigate the impact of Western sanctions. While the yuan has emerged as a vital currency for Russia amidst these sanctions, the sustainability of this economic lifeline is now in jeopardy due to liquidity issues and geopolitical pressures [7025650b].
China's yuan has become the most traded foreign currency in Russia, particularly after the invasion of Ukraine in 2022. However, the recent U.S. sanctions have halted dollar and euro trading, creating a precarious situation for Russian banks and businesses that have become heavily dependent on the yuan [7025650b].
Despite China's efforts to internationalize the yuan, its internationalization index remains significantly lower than that of the US dollar and the euro, with the yuan's share of global payments at just 2.77% compared to the dollar's over 42% [659aeaa8]. As Russia's reliance on the yuan grows, the potential for a liquidity crisis looms large, particularly as Raiffeisen Bank in Russia has already stopped payments to China due to a lack of available yuan [7025650b].
In summary, while the yuan has emerged as a critical currency for Russia amidst Western sanctions, the combination of rising interest rates, liquidity constraints, and geopolitical tensions poses significant challenges for the future of yuan-denominated transactions in the country [2ebad97b][7025650b].