Russia Starts Forex Intervention In 2023 With Chinese Yuan SaleJanuary 12, 2023
According to an announcement from Russia, it would kick off foreign currency interventions in 2023 with the sale of the Chinese yuan from Friday.
This highlights the rising importance of the Chinese currency for Russia because it wants to maintain economic stability in light of Western sanctions.
In modern history, the most severe sanctions have been imposed by the West on Russia due to its war with Ukraine.
However, Moscow’s economy has showed strong resilience despite them, but now the biggest producer of natural resources has to turn to China for support.
Russian President Vladimir Putin has stated that their partnership with Chinese President Xi Jinping does not have any limits.
Russian universities have also seen an influx of Chinese students and tourist spots in Moscow are now graced with signs in Mandarin, along with Russian and English.
The economic response of Moscow to sanctions imposed by the West was led by the country’s central bank as well as its finance ministry.
The Russian finance ministry announced that due to lower gas and oil revenues, they would now begin selling foreign currency worth 54.5 billion rubles from January 13th onwards.
Otherwise, the ruble has held its own against the US dollar throughout the last year and only struggled at the end because of the potential drop in revenues.
The announcement said that the Finance Ministry was resuming the sale and purchase of liquid assets for reducing the impact on public finances and the Russian economy of the volatile conditions in the energy market.
They said that domestic economic conditions would also see an improvement in their predictability and stability.
The 2023 budget of Russia is based on a price of about $70.1 per barrel for a Urals blend, but the main blend of the country is currently trading at a price below $50 for a barrel.
According to the International Monetary Fund, the nominal GDP of Russia is expected to be close to $2.14 trillion in 2023, which would be the highest it has been since 2013.
The US dollar had remained king in Russia for years after the Soviet Union had collapsed back in 1991, but since Western sanctions were imposed, the Chinese yuan has become an important player for Moscow.
Back in November, the renminbi, as the yuan is known, saw its share of the currency market climb in November to 48%.
According to the MOEX Group, this is a 1% increase from the beginning of 2022. The Bank of Russia said that forex transactions would be conducted on the Moscow Exchange’s yuan market tomorrow.
This means that it would make settlements in the yuan-ruble currency pair. The central bank of Russia is aware that the exchange rate dynamics can be impacted due to these operations.
Therefore, it also announced that it would purchase (sell) foreign currency evenly in the market every month on each trading day.
This would help in keeping the impact minimum and allow Russia to sell off its Chinese yuan holdings.