Russia Increases Yuan Sales by 17% to Support the Rouble Amid Sanctions
Russia announced on Wednesday that it will increase its sales of Chinese yuan by 17% starting February 7. This move is aimed at stabilizing the rouble amid rising volatility caused by Western sanctions and fluctuations in the global forex market.
Russia’s Foreign Currency Strategy
The Russian central bank operates under a complex foreign currency scheme, managing forex reserves to maintain market stability. It conducts currency transactions on behalf of the finance ministry, which oversees the National Wealth Fund (NWF), a reserve fund for economic stability.
Reduced Purchases of Foreign Currency and Gold
The Russian finance ministry stated that it will decrease its purchases of foreign currency and gold for the upcoming month. This decision will increase overall forex sales, thereby providing additional support for the rouble.
From February 7 to March 6, the ministry plans to purchase foreign currency and gold worth 66.5 billion roubles, averaging 3.3 billion roubles per day. In comparison, the previous purchase period saw transactions amounting to 70.2 billion roubles, or 4.1 billion roubles per day.
Impact on Forex Market and Rouble Stability
This adjustment will result in a rise in overall net forex sales by the Russian government and central bank. Effective February 7, sales will increase to 5.56 billion roubles per day, up from the previous 4.76 billion roubles daily.
Due to Western sanctions related to Russia’s actions in Ukraine, the central bank is restricted from trading in U.S. dollars and euros. As a result, the Chinese yuan has emerged as the primary foreign currency for Russian forex interventions, becoming the most traded currency in Russia.
Rouble Performance in Forex Trading
As of 09:30 GMT, the rouble had strengthened by 2.2%, reaching 98.50 against the U.S. dollar in over-the-counter market trading. Additionally, it gained 0.13% to trade at 13.27 against the Chinese yuan on the Moscow Stock Exchange (MOEX).
Since the beginning of the year, the rouble has surged by 13% against the dollar. This appreciation is attributed to lower demand from Russian importers during the New Year holiday season and despite intensified Western sanctions targeting Russia’s key export commodity, oil.
Volatility and Cross-Border Payment Challenges
On February 4, the central bank noted that the rouble’s exchange rate remains volatile due to ongoing issues with cross-border payments involving Russia’s trading partners and a declining current account surplus.
Central Bank’s Adjustment in Yuan Swap Operations
In a related move, the Russian central bank reduced its yuan swap operations by 50%, lowering the volume to 5 billion yuan. This decision aligns with the conclusion of China’s Lunar New Year holiday, which allows Russian banks to replenish their yuan reserves more efficiently.
Conclusion
Russia’s increased yuan sales underscore its ongoing efforts to stabilize the rouble and mitigate the impact of Western sanctions. By leveraging the yuan as its primary forex instrument, Russia continues to adapt to the evolving global financial landscape while ensuring liquidity and market balance.