Russia shifts to yuan as primary currency amid Western sanctions

Moscow has recognized the yuan as the primary currency in the Russian financial market. The Russian central bank officially announced that the yuan-to-ruble exchange rate will now set the trend for other currency pairs. As of Thursday, Russia has been almost entirely cut off from free trade in euros and dollars.

On Tuesday, new sanctions imposed by the West on Russia came into effect. Since Thursday, Moscow has had limited access to foreign currencies—specifically euros and dollars—prompting Russian authorities to act swiftly. Consequently, the Chinese yuan has become Russia's most essential settlement currency.

The Bank of Russia emphasized in its statement that the role of the US dollar and the euro in the Russian market has consistently diminished over the past two years. This is due to the redirection of trade flows to the East and the switch to settlements in rubles, yuan, and other currencies of countries friendly to Russia. According to data, in May, the share of the yuan in turnover on the Moscow Exchange was 54%, making it the main currency in stock trading, as published on the rbc.ru website.

The regulator noted that the official ruble exchange rate would remain unified and market-driven, with only the scope of data used for its calculation changing. This decision refers to the Bank of Russia's move to calculate the official ruble exchange rate based on the over-the-counter market. It was emphasized that international and national currency markets in most countries are predominantly over-the-counter, and exchange trading is not necessary for currency exchangeability, free trading of foreign currency, and market-based exchange rate formation.

The central bank confirmed that dollars and euros would continue to be traded in the over-the-counter market, where their volume has long surpassed transactions on the Moscow Exchange.

Companies and individuals can continue to buy and sell US dollars and euros through Russian banks. All funds in US dollars and euros in the accounts and deposits of citizens and companies remain safe, the statement read.

The Bank of Russia stated that the sanctions imposed on the Moscow Exchange only change the structure of trading in the domestic currency market; they do not affect the amount of currency inflows from exports or the demand for currencies to pay for imports. Therefore, the overall balance in the currency market remains unchanged, unlike in 2022 and 2023, when both exports and imports saw significant changes. The sanctions were imposed predominantly by the United States but are also observed by European Union countries, so stock trading in euros was also suspended.

The regulator also reminded that the ruble exchange rate against key currencies depends on the balance of supply and demand resulting from foreign trade, not the place of transaction. Recently, due to favourable conditions in energy resource prices, exporters have been selling more currencies. In May, sales grew by 13% (to £12.3 billion) among the 29 largest exporters.