Russian ruble tumbles to new low as yuan reigns supreme

Wednesday's session on the Moscow stock exchange saw a dramatic collapse of the ruble's exchange rate. The Chinese currency strengthened by 0.4961 points to 14.9572 rubles, representing an increase of 3.43% compared to Tuesday's close. In many months, this marks the strongest one-day weakening of the Russian currency against the yuan.

Today's collapse fits into the long-term trend of ruble depreciation. Over the past 12 months, the CNY/RUB rate increased from 11.4061 to the current 14.9572, weakening the Russian currency by over 21%. Particularly intense selling of the ruble occurred in the last quarter when the rate broke through successive technical resistance levels.

Notably, on Wednesday, the Russian ruble fell to its lowest level since the start of the invasion of Ukraine, surpassing the rate of 105 rubles per U.S. dollar. The sudden weakening of the currency is a result of new sanctions imposed on Gazprombank and increasing tensions between Russia and Western countries.

The current situation directly results from a fundamental change in Russian currency policy. In June 2024, the Bank of Russia announced that the yuan-to-ruble exchange rate would henceforth set the trend for other currency pairs. As the central bank reported then, "the role of the U.S. dollar and euro on the Russian market has consistently diminished over the past two years due to redirecting trade flows to the East."

The decision came in response to new sanctions introduced by the West. The central bank confirmed then that the official ruble exchange rate would remain single and market-based; only its calculation method would change. According to data from the Russian regulator, as early as May, the yuan's share in trading on the Moscow stock exchange exceeded 54%, making the Chinese currency dominant in stock market trading.

In a June communiqué, the Russian regulator presented a detailed analysis of the impact of sanctions on the currency market. The central bank emphasised that the new restrictions are changing the trade structure without affecting the volume of currency flows from exports or the demand for currencies needed to finance imports.

The Bank of Russia paid particular attention to the growing role of the over-the-counter market in trading Western currencies. "Transactions are conducted directly between banks, also involving non-resident banks from friendly countries and clients, mainly Russian exporters. Additionally, electronic trading platforms operate in the over-the-counter market, where banks can conduct transactions in dollars and euros," explained the regulator.

Central Bank analysts pointed to favourable conditions in the energy commodity market. In May, currency sales by 29 major exporters increased by 13%, reaching the level of 11 billion pounds. These data showed that despite sanctions, the Russian economy continues to generate significant currency revenues.

The regulator emphasised that the ruble exchange rate against key currencies depends primarily on the balance of supply and demand resulting from foreign trade, not where transactions are concluded. Sanctions were introduced only by the United States but were also observed by European Union countries, which is why stock trading in euros was suspended.

According to the Bank of Russia, the changes introduced in June represent a fundamental difference compared to 2022-2023, when exports and imports experienced significant fluctuations. However, the current situation in the currency market shows that despite the regulator's optimistic assumptions, the ruble remains under strong selling pressure, and its exchange rate against the yuan continues to fall systematically.