Romance with the yuan: is it worth buying Chinese currency

Mentally, the yuan still remains on the sidelines of the vital interests of Russians. People are clearly in no hurry to acquire it on a scale comparable to savings in “toxic” currencies. Yes, the yuan has achieved impressive success on the Moscow Exchange: in the first seven months of this year, the volume of spot trading (this is the process of directly buying and selling financial assets with payment “on the spot”) reached 18.3 trillion in rubles, which is 6.5 times higher than in the same period of 2022. This year, the yuan has become the leader in foreign currency payments by Russian businessmen: about 70% of transfers were sent in it, it is in demand for working with China, Hong Kong and Singapore.

The achievements of the yuan in Russian public finances are also great. In 2023, the share of the “Chinese” in the new structure of the National Welfare Fund doubled to 60%.

Yes, according to the new budget rule, the Ministry of Finance has been buying and selling yuan since January 13 to reduce the dependence of the budget on fluctuations in oil prices. Yes, the share of yuan in Russia’s foreign trade operations continues to grow: according to the Central Bank, it has reached 25% in exports and 34% in imports. For comparison: the share of the ruble is, respectively, 39% and 30% in exports and imports. And indicators of “toxic” currencies (dollar and euro together) – 33% and 35%.

dependent status

However, with all these obvious successes, it is not necessary to talk about the “triumphant march” of the Chinese currency across the expanses of deep Russia, through the minds and wallets of millions of ordinary people. Since the yuan is not a freely convertible currency, it is impossible to use it as the basis for the ruble’s exchange rate.

In addition, the exchange rate of the yuan is tightly regulated by the People’s Bank of China: Beijing is interested in its relative weakness, since this gives higher export earnings. The yuan has no chance of becoming the “new dollar” for Russians (as Sergei Titov, Director of the Money Market Department of the Moscow Exchange), as long as more than half of world settlements are in US currency.

“The yuan has a clear division into two markets – onshore (internal China) and offshore (external), – explains Oleg Buklemishev, director of the Center for Economic Policy Research at the Faculty of Economics of Moscow State University named after M.V. Lomonosov. “Therefore, there are often problems with its turnover and exchange, related, in particular, to the opacity of current bank accounts.

The dependent status of the Chinese regulator prevents the yuan from becoming a world currency from the first row: behind every action of the NBK, for all its undoubted professionalism, the figures of the leaders of the country’s Communist Party loom.

China’s political leaders can interfere at any time in determining the exchange rate and other monetary parameters. The unpredictability of the exchange rate is the undeniable flaw of the yuan.”

The yuan in Russia is still not customary to correlate with the ruble exchange rate, psychologically it is absolutely not the currency that the broad masses are guided by, the MK interlocutor is sure. Save “under the pillow” in the form of cash (which is not available in all bank branches), open exotic deposits? Somehow it does not seem that the population is intensively engaged in this, despite the “favorable” (interest on deposits from 0.01 to 3.5%) offers from credit organizations.

Yuan is an excellent currency for commodity exporters, classic “shuttle traders” and tourists going to China – as a means of payment. Let’s say you sold oil there, and brought equipment for oil production from there. In this case, all trade and payment ends converge.

But what about, say, an individual with a certain amount of cash yuan on hand, who plans to take a vacation outside of China? It is not clear what he will do with the yuan: there are few places where they can be exchanged due to their inconvertibility, and they will not be able to pay for purchases outside the Celestial Empire either. This currency is less versatile and liquid in terms of exchange rate dynamics and risks. Let’s say it lost 17% of its value against the dollar last year.

“The share of the yuan in Russia’s international reserves is 20%, nowhere in the world is there such a high figure. The total yuanization of the economy is a forced and largely counterproductive process, says Buklemishev. – Officials who advocate the transition to settlements in national currencies, apparently, do not fully realize that this increases the unhealthy dependence of our country on Beijing, on its financial interests – due to the incomparable (not in our favor) sizes of the two economies, the largest yuan weight in the world. Due to the current geopolitical circumstances and sanctions, we definitely need China more than it needs us.”

Dollar mirror

The yuan is the de facto currency of a developing country. It can also be called regional, for example, today settlements with India for energy resources are made in yuan instead of completely unclaimed rupees. And the fact that the role of the “Chinese” in Russia has grown so much in a relatively short period of time is a forced scenario, out of desperation, notes financial analyst Sergei Drozdov.

When in the spring of 2022 the Central Bank introduced restrictions on withdrawing dollars and euros from accounts in cash (no more than 10 thousand in hand, the rest in rubles at the intrabank rate), the population began to actively buy yuan (for the past year – in the amount of 138 billion rubles) , but this burst of activity on his part did not last long.

If the West had not turned off Russian banks from SWIFT, and the geopolitical situation had not changed in the most radical way, none of the individuals would have looked in the direction of the yuan, the expert is sure. Of course, for private entrepreneurs trading with China, it is needed: it is easier and safer to keep it on accounts, and transfers in dollars are extremely difficult. In a number of cases, commercial partners of Russians in Latin America also agree to accept yuan for payment. For example, meat producers in Brazil.

“Now, when the dollar is again approaching the 100 ruble mark, people are somehow not eager to invest in the Chinese currency,” Drozdov states. “Moreover, in February-March last year, on a wave of panic, some managed to buy it at the rate of 20 rubles per yuan (today – 13.2) and ended up making a big mistake.”

The paradox of the yuan is as follows: although this currency is not freely convertible (there are severe restrictions on the inflow and outflow of capital from the NBK), it is a reserve one. The fact that it is part of the IMF’s SDR (reserve currency) basket gives central banks the opportunity to make foreign exchange savings in yuan. And our Central Bank needs to do this, says Nikita Maslennikov, a leading expert at the Center for Political Technologies.

The choice in favor of the yuan is generally understandable and justified. Firstly, China is Russia’s largest partner: bilateral trade in January-June this year increased by 40.6% compared to the same period last year, to $114.54 billion. Secondly, the yuan acts as a mirror that reflects the dollar , traditionally its rate fluctuates within plus or minus 2% relative to the “green”. However, there are also unpleasant moments. In particular, today the yuan is weakening in the global foreign exchange market, as the PRC economy is slowing down (in 2022, its GDP grew by 3% instead of the expected 5.5%), risks associated with the trade and balance of payments, as well as with an extremely leveraged real estate market, are growing. , with a huge mass of bad debts on the balance sheets of banks.

The ruble is out of competition

“You have to understand,” says Maslennikov, “that the “romance” between Russia and the yuan is a local story: globally, the position of the dollar in the system of international settlements is only getting stronger. In July, according to the latest report on SWIFT, its share rose to 46% from 39% in June. The yuan rose slightly above 3%, primarily due to increased trade with Russia.

In our foreign exchange market, it is very actively used: today, in terms of exchange turnover, the “Chinese” is on a par with the dollar, while at the beginning of the year it was almost ten times inferior to that in volume. Periodically, there is a shortage of free yuan liquidity, which is needed primarily by industrial enterprises that have switched to Chinese counterparts in the import of machinery and equipment. The problem of imbalance in foreign trade remains. In particular, in the structure of friendly currencies, our spending on imports exceeds export earnings in dollar terms by about $1.5 billion per month.”

As for bank deposits of individuals, the ruble is still out of competition here. According to Maslennikov, the share of deposits in dollars and euros fell by about half over the year – from 12% to 6%, while the share of deposits in “non-toxic” currencies (yuan, Armenian dram, UAE dirham, Turkish lira) increased to 4%. Moreover, the yuan makes up more than half of this volume.

The demand for yuan cash is still quite moderate: these banknotes are needed only by those who fly to China, and it is advisable to keep them “under the pillow” only as a speculative asset. Cash dollars in the hands of the population is about 90 billion, yuan ten times less.

Selling one yuan at today’s exchange rate, you will get 12-13 rubles, and for a dollar – 96. In addition, Maslennikov argues, the Chinese currency is not available everywhere – only in those banks that service the trade operations of Russians with partners in China.

Timur Nigmatullin, an investment consultant at Finam, advises Russians not to get involved with Chinese currency. According to him, it is much safer to keep money on ruble deposits: they have high rates and low risks. And if the yield does not suit you, you can consider the option with securities: for example, buy sovereign Russian Eurobonds in dollars that are fully protected from sanctions. There is no tax on currency revaluation, the yield is around 6%, they pay in rubles at the Central Bank rate.

Nigmatullin recalls that the yuan can only be spent in China, and there is no such confidence in it as in full-fledged reserve currencies, since the NBK does not fully target inflation. “In general, it is not clear what it is doing: either the exchange rate targets, or inflation, or stimulates the economy. The goals are vague, due to the lack of freedom of movement of capital, ”says the analyst.

So, today the state, business, banks, the Central Bank and the Ministry of Finance need the yuan. But not the Russian population! For obvious reasons, making a stash of a slow-moving currency, more suitable for diversification than for full-fledged savings, is pointless.

Despite the efforts of the authorities to de-dollarize, the yuan remains only a settlement tool for the corporate sector and a way to make money from stock speculators. The main, fattest minus of the “Chinese” is its non-market nature, which sharply narrows the range of applications for people. By the way, even China itself uses the yuan in only a quarter of international trade transactions. Russia did not choose it because of a good life: the lion’s share of gold and foreign exchange reserves has been frozen, transactions with dollars and euros have moved from the category of super-reliable to high-risk, deposits in “toxic” currencies have ceased to generate income for banks. However, the yuan vaccination, given to the country in 2022 under the pressure of force majeure, gave a very controversial final effect, despite the most powerful dose. This story is clearly not from the category of “endure – fall in love.”