![]() ![]() The swap agreement sum between China and Russia amounted to 150 billion yuan (about $24 billion), but its real-life application was limited to a few test deals conducted by the Central Bank of Russia and the People’s Bank of China. ![]() In 2014, Russian companies gained another instrument for attracting financing from China: through the bilateral swap agreement between Moscow and Beijing. There have been cases when the Chinese bank accounts of Russian companies in both Hong Kong and mainland China have been frozen, and Russian entrepreneurs have been refused loans because of the sanctions risks. Western sanctions have frequently impeded Russian companies trying to do business with China via Hong Kong. Still, the offshore renminbi channel is not a solution to all the problems in dealings between Russian and Chinese companies. It has a more free-floating rate than the onshore renminbi, and its purpose is to make it easier to invest in China and move money outside of mainland China. To try to make the yuan more international without losing control over the exchange rate entirely, the Chinese authorities have created the offshore renminbi (CNH), which has been traded since 2009 on the Hong Kong exchange. In January–April 2020, China’s foreign exchange reserves decreased from $3.115 to $3.091 trillion. At the outbreak of the coronavirus pandemic, for example, the People’s Bank of China stopped the yuan from depreciating by selling foreign exchange reserves. Beijing toyed with the idea of loosening the capital repatriation rules in 2015 amid the yuan’s introduction to the IMF’s SDR basket, but that led to record capital flight (up to $1 billion) out of China.īeijing may wish to promote the yuan’s greater internationalization, but periodic crises have shown that a nonconvertible currency makes it easier to control the impact of economic shocks on domestic financial markets. There are also restrictions on moving capital out of China, including for foreign companies. Instead, the People’s Bank of China sets a daily reference rate for the yuan against the dollar, from which trading via interbank currency markets cannot diverge by more than 2 percent. One of the main reasons for the yuan’s lack of progress is that it is not freely convertible. dollar, euro, pound sterling, and the Japanese yen are all more popular than the yuan as currencies in international settlements. China is currently the world’s biggest trader-accounting for about 13.5 percent of global exports and 11.4 percent of global imports-but the yuan accounts for only 1.7 percent of international settlements as of June 2021 (compared with the dollar’s 38.4 percent share and the euro’s 39 percent). Even the enormous size of China’s economy isn’t helping to increase the global profile of its national currency. trade dispute), while Russian reserves contracted by an estimated $3.4– $4 billion, so by the end of 2019, the proportion of central bank assets held in yuan had decreased to 12.2 percent.ĭespite the International Monetary Fund adding the Chinese national currency to its Special Drawing Rights (SDR) basket back in 2016, the latest data showed that in the final quarter of 2020, the yuan only made up about 2.25 percent of international reserves. In 2018–2019, the yuan lost 6.4 percent of its value (partly because of the China-U.S. Yet the trend of increasing that proportion has reversed. ![]() In March 2018, Russia’s central bank made global headlines when it reported that 14 percent of its reserves were now held in yuan. When it comes to money, it seems that the lofty ambitions of political leaders are no match for the insufficient liberalization of the Chinese financial system and the unwieldy Russian economy beset by sanctions. dollar are thwarted by the lack of practical incentives to develop financial ties. In practice, however, these top-level statements of friendship against the U.S. ![]() sanctions this way, while Beijing, in its most recent Five-Year Plan, outlined its intention to construct and advance the security of yuan cross-border payment systems while steadily promoting the currency’s internationalization. Moscow hopes to become less vulnerable to U.S. The Russian and Chinese leaders regularly discuss increasing the use of their national currencies in bilateral payments, most recently in a phone conversation at the end of June. ![]()
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