Russia Shifts to Yuan, Ditches the US Dollar!

Written by David Thompson.

The Bank of Russia has made a significant announcement: the yuan/ruble exchange rate will now guide other currency pairs on the Moscow Exchange (MOEX), including the euro and the dollar. This decision follows the latest round of U.S. sanctions, which led MOEX to suspend trading in dollars and euros.

The UK has echoed Washington’s move, introducing similar restrictions against the Russian financial system. Despite these sanctions, transactions in U.S. dollars and euros will continue in the over-the-counter (OTC) market.

“The yuan/ruble exchange rate… will become a reference point for market participants. The share of the yuan in Moscow Exchange trading in May was 54%,” the Bank of Russia stated. “Thus, the yuan has already become the main currency in exchange trading,” they added.

Decline of Western Currencies in Russian Markets

The regulator noted a steady decline in the share of the dollar and euro in the Russian market over the past two years. This shift is attributed to redirected trade flows to the East and a transition to rubles, yuan, and other currencies from friendly countries.

In response to Western sanctions over the Ukraine conflict, Russia has been actively replacing the dollar and euro in foreign trade. This has led to a dramatic reduction in the number of bank accounts and transactions involving Western currencies. Before the conflict, the U.S. dollar and euro accounted for about 90% of Russia’s foreign trade settlements.

Putin’s Stance on the Currency Shift

Addressing the St. Petersburg International Economic Forum, Russian President Vladimir Putin highlighted the decrease in payments for Russian exports in the so-called ‘toxic’ currencies of unfriendly states. According to Putin, the share of the ruble in Russia’s foreign trade operations continues to grow, while payments in currencies of states that imposed sanctions against Russia are declining.

Putin emphasized that the move away from the U.S. dollar and euro is not just a reaction to sanctions but a strategic shift towards strengthening economic ties with nations that have not imposed sanctions. This realignment aims to create a more resilient and independent economic framework for Russia.

Our Take

The shift to the yuan as Russia’s main foreign currency marks a pivotal moment in global finance. This move away from the dollar and euro signals a significant realignment of international economic power. It demonstrates Russia’s intent to forge stronger economic ties with Eastern nations, reducing dependence on Western financial systems.

This strategy, while beneficial for Russia in the short term, poses substantial risks for global economic stability. By moving away from established currencies, Russia could trigger broader geopolitical tensions and economic disruptions. This shift may also inspire other nations to follow suit, potentially undermining the dollar’s status as the world’s primary reserve currency.

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