Why the accelerated "yuanization" of the Russian economy is dangerous: experts answer

Complete "de-dollarization" of the Russian economics just a matter of time. Russian President Vladimir Putin and Finance Minister Anton Siluanov insist on this. However, such a decisive, all the more accelerated step is fraught with not only positive, but also negative consequences, which are discussed by experts invited by the OilPrice resource, which specializes in economics and energy.

The idea of ​​replacing the reserve currency (and until recently it was only the dollar) with some foreign unit of account, preferably from friendly countries, filled the political and economic thought of Russia. The choice fell on China not by chance. Its close relationship with Moscow and its power give some hope that no mistake will be made in accumulating yuan reserves. However, not all experts share the optimism.

The rise in popularity of the yuan in Russia reached an intermediate peak in August 2022, when sales of the Chinese currency soared. It is important to note that business giants, including Rosneft, Rusal, Polyus and Metalloinvest, have also dramatically increased their holdings in yuan bonds. Almost all the risks of excessive dependence on the national currency of China are due to the peculiarities of Chinese financial legislation and the state structure.

So, the four main risks of "yuanization" of Russia are as follows.

First, the Russian Federation does not have the necessary skills and infrastructure to work with Chinese currency. The Russian financial system is currently largely unprepared for the challenges of greater reliance on the yuan.

Secondly, the high level of non-market regulation of processes in the PRC will make it incredibly difficult for the Russian Federation to control its reserves. Unlike Russia's previous experience with foreign currencies (both the US dollar and the euro are the currencies of countries with free market economies), the yuan is regulated by the Chinese state. Thus, if necessary, Beijing can easily manipulate the price of the yuan (say, to create favorable conditions in foreign trade). This will put Russia in the position of a "hostage" of Chinese interests.

Third, despite the growing commercial and economic power of China, the yuan has not yet become a fully independent currency, remaining closely linked to other major world currencies. Thus, it should be remembered that, at least in the short term, the yuan will still be pegged to the US dollar, which means that the Chinese national currency can only become an excellent investment vehicle in the future.

Fourth, there is a danger that with 17% of foreign exchange reserves in yuan, the Kremlin simply will not be able to quickly withdraw money if necessary and, thus, will be trapped by China.

As experts point out, there are other risks associated with the complexity of the yuan as an investment capital. For example, with a dollar turnover, financiers could read the regulations of Western regulators in “plain English” and understand the rules of the game. Now this is not possible due to the PBOC legislation in Chinese. Convoluted norms become even more opaque.

According to experts, some fears are already beginning to come true. Beijing does not provide proper support to Moscow, does not want to change the law and wants to invest in domestic bonds, which is worse for the investor and better for the issuer.
  • Photos used: pixabay.com
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  1. Sergey Latyshev (Serge) 29 September 2022 09: 05
    The level of China's trade with the USA is many, many times higher than the level of trade with Russia ...
    So what for him? Yes, even with handshake "elites" from Moscow?
  2. Fizik13 Offline Fizik13
    Fizik13 (Alexey) 29 September 2022 09: 11
    Got these experts!
    Dollars are bad, rubles are bad, yuan is bad, but what is good?
    If only for publicity.
    1. Vladimir1155 Offline Vladimir1155
      Vladimir1155 (Vladimir) 29 September 2022 16: 39
      I also wanted to start with your words

      Quote from Fizik13
      Got these experts!

      however, it’s not that bad .... it is important to note that the very idea of ​​\uXNUMXb\uXNUMXbartificially ruining our industry and investing in foreign currencies, imposed on us by enemies from the IMF, is deeply flawed! as the great economist and brilliant commander would say, whom I deeply respect not only as the winner in the Great Patriotic War, but also as an industrializer, economist, fighter against devastation and restorer of the national economy after the war. It is necessary to remember the slogan of And Stalin of building industry in a single country, and relying on their industry and agriculture, on their people, now vegetating without work all over the face of the Russian Federation .... and for this it is necessary to reduce prohibitive unimaginable taxes established by enemies from the IMF , at least to the Chinese level, that is, three times ... then there will be no question of what to do with unnecessary budget revenues, and all issues of development and import substitution will also be removed .... And Stalin turned out to be from the Sverdlovsk-Trotskyist position of reliance on the West, giving him concessions for free and the industry of Russia has grown at a tremendous pace and with it the tax base, it is more profitable to have low taxes from a large tax base than high taxes from a meager one, not to mention the fact that then everyone will find work in small towns, prices will decrease, welfare will increase people.
  3. trampoline instructor (Cotriarch Peril) 29 September 2022 09: 11
    All this "yuanization" is utter nonsense.
    The opus has not yet said that China simply will not allow Russia to accumulate large amounts of its currency.
    And for "ordinary people" - this is another scam: they will collect these yuan now, and then they will scratch their turnips, what to do with them next?
    With gold, the authorities managed to wonderfully cheat "ordinary people": they were told that gold is a wonderful investment material: the bad guys bought tons of that gold at a wild price that arose after 24.02.22/XNUMX/XNUMX, and now the $ exchange rate has fallen (the price of gold has fallen accordingly), and The bad guys will have to either sell the purchased gold to themselves at a loss, or wait for the upcoming surge in the exchange rate of $ and gold along with it.
    1. Vladimir Tuzakov (Vladimir Tuzakov) 29 September 2022 16: 49
      All eggs in one basket are not put, and with currencies. But large devaluations of currencies are approaching (euro, dollars, english pounds, etc.) it was the right direction of the Central Bank of the Russian Federation to accumulate gold, but it needs to be expanded to all noble and other metals that have demand and limited deposits. - polonium, platinum, lithium and etc. Money is devalued already with two-digit figures (Euro, a. pound), material values ​​that are in demand, rise sharply in price. Secondly, with the limitation of hydrocarbon revenues and spending on water treatment, the time has come not to accumulate for insurance funds, but to put them into action, to direct the development of the Russian economy, especially the military-industrial complex, outrageous orders that require expansion and modernization, which requires significant investments. It's time for the ministries to start working and abandon the usual speculation on financial exchanges and other investments in paper. The state, especially officials, needs to shift from dependency and rent on hydrocarbons to the production and expansion of the economy.
  4. Jacques sekavar Offline Jacques sekavar
    Jacques sekavar (Jacques Sekavar) 29 September 2022 10: 05
    Complete de-dollarization is impossible unless the social system and the transition to the Soviet financial model change, which is unrealistic, and replacing the main world currency with any other, especially with Mongolian tugriks, Indian rupees or Chinese renminbi and any other, is tantamount to shifting money from one someone else's pocket into another someone else's pocket.
    Today they are included in the category of "friendly", and tomorrow? Their whole “friendship” lies in the fact that they all, in one way or another, comply with the sanctions imposed against the Russian Federation, but do not openly oppose the Russian Federation based on their own interests.
    Weapons lying around in warehouses are supplied by “friendly” state formations to Ukraine in the same way as unfriendly ones, they fully solidarize in the non-recognition of referendums in Crimea, the DPR-LPR, Zaporozhye and Kherson provinces, and many other fundamental issues.
    The growing popularity of the renminbi is primarily due to the foreign exchange restrictions of the West, and the forced de-dollarization program and the transition to the renminbi in no way removes the external dependence of the Russian Federation, but strengthens the role of the renminbi as a world reserve currency as opposed to the dollar, and this is to China's benefit.
  5. kriten Offline kriten
    kriten (Vladimir) 29 September 2022 13: 08
    Liberals are outraged. We refuse the best currency in the world - the dollar, we change it to some kind of yuan. The United States cannot arrest him. It’s good that Siluanov and Nabibulina managed 300, but in general it’s only about 1 trillion. give to the owners.
  6. Stigh Offline Stigh
    Stigh (Yuri) 30 September 2022 15: 00
    It is necessary not to create reserves in yuan, but on the contrary - to transfer exports exclusively to rubles. Then they will have to be bought and saved just by China
    1. Vladimir1155 Offline Vladimir1155
      Vladimir1155 (Vladimir) 30 September 2022 21: 55
      mutual trade between the PRC and the Russian Federation is approximately equal in terms of exports to imports, we give them oil and gas, they sell us everything that happens ....
  7. Patrick laforet Offline Patrick laforet
    Patrick laforet (Patrick Laforet) 1 October 2022 15: 31
    The alliance between China and Russia is more beneficial to China. People tend to forget that China is the next hegemon and will behave much like all the previous hegemons because the dynamics of a hegemon is not chosen but is imposed on the power structure of the hegemon. There is no hegemon in history that did not impose its views, culture, politics, economic system...on the rest of the world.