Russia Appears In Top RMB Global Trading Economies For The First Time

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Moscow’s attempts to de-dollarize its economy appear to be working

The Ukraine conflict and the West’s reaction to it have manifested themselves again in unusual but not completely unexpected ways. Russia for example has just broken into the world’s top 15 RMB trading economies for the first time. This is not just a result of increased China-Russia trade, it is also a byproduct of Russia’s inability to access US dollars following sanctions and a deliberate attempt by Russia to de-dollarize its economy. As such, this trend of Russian RMB trade volumes can be expected to increase significantly in coming months as China’s currency becomes preferred over that of the US.

China’s ICBC began RMB clearing services in Russia in 2017, having announced the inclusion of China’s currency as part of its foreign reserves in 2015. Today, Russia’s foreign reserves have almost completely been de-dollarized, expelling the US dollar from its national wealth fund in 2021. Russia-China bilateral trade in US dollars has decreased from close to 100% settlement in 2013 to about 15% today. That can be expected to reduce further to close to zero by this year end.

It is not just the RMB that Russia has turned too. Another increasingly non-US dollar partner is India, who is actively seeking ways to boost Ruble-Rupee trade. In fact, under Indian Prime Minister Modi, the share of such trade against the US dollar usage has increased from zero to about 30% of all Russia-India transactions in the past five years. Russia is betting that its de-dollarization mechanisms developed with China and India will provide immunization against Western sanctions. They probably will.

While Washington and Brussels won’t like it, their economies are intertwined with those of China and Russia to the collective total of US$1.69 trillion per annum. That is about 10% of the EU’s total annual GDP and about 5% that of the United States. Sanctioning either China or India at this time, given rampant inflation, food and energy shortages would be disastrous for both Western economies. Weaning both off Chinese and Indian trade will take time and is probably on the agenda longer term as the EU market becomes more closely intertwined with that of the US. But which global economies will still be content to use the US dollar in international trade given the sanctions and financial manipulation risks attached will be a completely different story.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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