Yuan liquidity in Russia dries up as Chinese banks halt transfers
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Chinese banks are growing increasingly wary of indirect involvement in financing Russia’s military efforts due to expanded U.S. sanctions announced in June, Bloomberg reported on Aug.13.
These sanctions have severely restricted the flow of yuan into Russia, leading to a shortage of the currency on the Russian market.
As yuan liquidity dries up, Russian companies are turning to costly yuan swaps with the Bank of Russia—a measure typically seen as a last resort. The average daily yuan borrowing via swaps has doubled to 20 billion yuan ($2.8 billion) in August from 10 billion yuan in June.
Sberbank, Russia’s largest bank, acknowledges that there are no "prospects" for significantly improving yuan liquidity. "The Russian yuan market hasn’t recovered, indicating that Russian banks are struggling to find reliable workarounds," said Alex Isakov, a Russia economist.
He added that higher yuan costs could reduce trade with China, Russia’s main source of imports. If Chinese exports to Russia decrease in the second half of the year, Washington could claim a significant victory in its sanctions war against Russia, further challenging the yuan’s ability to serve as a dollar alternative.
Vladimir Chernov, an analyst at Freedom Finance Global, noted that many Chinese lenders are hesitant to transfer yuan, with some even freezing transactions.
The issues between Russian and Chinese banks began in late 2023, influenced by a U.S. executive order allowing secondary sanctions against third-country banks that cooperate with sanctioned Russian entities and assist Russia’s defense industry.
By April 2024, several Chinese banks had stopped accepting yuan payments from Russia, fearing U.S. secondary sanctions. In July 2024, Chinese banks labeled yuan from Russia as "dirty" and started rejecting them, with roughly 80% of yuan payments being returned to Russia.
Russian businesses have reported that even small Chinese banks are refusing their payments. Bloomberg also reported that the Russian central bank is preparing for a scenario where yuan trading on the stock exchange may be halted as Chinese banks gradually reduce their cooperation with what has become a "toxic" exchange.
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