Russia may not be able to rely on China’s currency as initially hoped, as banks in Beijing are forced to comply with U.S. sanctions imposed on Russian President Vladimir Putin’s economy in response to the war in Ukraine.
Russia’s central bank governor, Elvira Nabiullina, said on Thursday that payments issues are one of the main challenges facing the Russian economy. The bank is considering all risks, including the risk of the yuan being halted from foreign exchange trading, she told reporters.
Newsweek The Russian Foreign Ministry was contacted by email seeking comment.
Sergey Bobilyov/Sputnik/AFP/Getty Images
Russia has become increasingly reliant on Chinese currency since it was cut off from the SWIFT banking system in response to the war in Ukraine.
However, many of China’s state-owned banks have recently tightened restrictions on lending to Russian companies in response to the U.S. Treasury Department’s December announcement that it would impose secondary sanctions on foreign banks that do business with companies that support Russia’s defense industry.
Asked at a news conference in St. Petersburg whether regulators saw any risk in suspending foreign exchange trading of the yuan, Nabiullina, Putin’s top banker, said: “We are considering all risks.”
Nabiullina added that Russia is not financially isolated as it still exports commodities such as oil and natural gas to global markets.
“The risk of complete financial isolation can occur only if the world market does not need our exports. Payments are made when needed, economic entities of many countries need our market, and economic interests are secured,” Nabiullina said.
In February, three major Chinese banks – Industrial and Commercial Bank of China, China Construction Bank and Bank of China – stopped accepting payments from sanctioned Russian financial institutions.
The Russian newspaper reported that the decision was due to the “risk of secondary sanctions” from the United States. Izvestia According to reports at the time, the banks were ranked first, third and fourth respectively in terms of assets in China.
Zhejiang Zhouzhou Commercial Bank, a major Chinese bank used by Russian importers, also suspended its operations in Russia in February, Russian business daily reported. Vedomosti report.
And last month, a Russian newspaper reported that the Russian unit of a Chinese bank that specializes in yuan-denominated payments stopped doing business with a Russian bank that has been hit with sanctions by the United States over the Ukraine war. Kommersant The report cited financial industry sources.
Experts previously Newsweek The move shows how Chinese companies fear violating U.S.-led sanctions.
“Chinese banks are trying to comply with U.S. sanctions and, to reduce their own risks, have effectively stopped paying in U.S. dollars for trade with Russia and replaced it with Chinese yuan,” said Pavel Bazhanov, a Russian lawyer who provides legal support to Russian companies in China and the region.
Bazhanov said U.S. President Joe Biden’s Executive Order 14114, issued on December 22, 2023, “creates new risks of secondary sanctions” for Chinese financial institutions.
“Chinese banks are suspending operations to assess new risks and update compliance requirements,” Bazhanov added.
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