“The yuan can be devalued at any time”: the pros and cons of the Chinese currency

Should you keep your savings in it?

The Chinese yuan is the new favorite of the Russian foreign exchange market: it is now chosen by both professional investors and often ordinary citizens who have not got rid of the habit of saving in foreign currencies. The volume of transactions with the yuan on the Moscow Exchange is currently the maximum, periodically exceeding the euro. At the same time, the Ministry of Finance announced that it plans to replenish the NWF with Chinese currency. There are more and more offers for deposits in yuan in Russian banks. Will the yuan become a new currency haven for the savings of Russians?

There are many advantages to investing in the PRC currency: its reliability is ensured by the second economy in the world with a strong trade balance. The yuan has low volatility – this is how the difference in fluctuations between the maximum and minimum value of the currency against the US dollar is called in the exchange language. For the yuan over the past 10 years, it was only 18.5%. The ruble against the dollar, we recall, only over the past six months has weakened twice and then strengthened just as much.

You can exchange yuan for local currency in many countries of the world. Thanks for this should be Chinese tourists, who before the pandemic could be found in the most exotic corners of the planet.

The popularity of the yuan in international settlements is also growing. In 2021, it accounted for 2.7% of cross-border payments. The yuan was overtaken in this indicator only by dollars, euros and pounds sterling. It is already clear that in 2022 it will bypass some of the listed currencies.

Considering that dollars and euros in Russia are already officially called “toxic currencies”, the road to the heights of popularity in our open spaces is open for the yuan. It is no coincidence that, according to the Central Bank of the Russian Federation, from April to June, citizens purchased yuan in the amount of 0.4 trillion rubles, which is many times more than in the same periods of the previous 3 years. “We can expect that demand will only increase in the coming quarters, and the desire of Russians to buy yuan will become a fashionable trend,” said Nikolai Pereslavsky, a member of the Economic and Financial Research Department of the CMS Institute.

But the growing popularity may be driven by the policy of the People’s Bank of China, which ensures the stability of the Chinese currency. “The yuan is tightly regulated by the Chinese authorities, it can be devalued at any time,” warns Valery Yemelyanov, an expert on the stock market at BCS World of Investments. The second problem is that rates on deposits in Chinese currency leave much to be desired. “The rates on deposits in yuan for up to 1 year do not exceed 2% per annum,” says Mikhail Shulgin, head of the global research department at Otkritie Investments. “Such rates do not look attractive from an investment point of view.”

But on the other hand, as Natalia Milchakova, a leading analyst at Freedom Finance Global, notes, if you have reasons to keep your savings in a foreign currency, then it is better to choose the yuan, because it is the only world reserve currency that does not carry sanctions risks for Russians. True, if your money is in a bank deposit, you need to take into account the commission for holding savings in foreign currency with some banks, which will reduce your income to the point that it can even make it negative, the expert warned.

According to Veles Capital analyst Elena Kozhukhova, the demand for the Chinese currency may grow in the medium or long term if travel to China becomes popular, given that travel and other activities for Russians in Europe are almost banned, and trade with the PRC will expand even more, including with the use of national currencies instead of the dollar. In addition, Russia is currently pursuing a policy of replacing the US currency, and many Asian and Middle Eastern financial regulators have shown their interest in this approach.

According to Milchakova, over time, the yuan will be able to replace both the dollar and the euro, especially if the People’s Bank of China implements its digital yuan project not only within the country, but also as a means of international settlements. “This can happen, probably, within the next few years,” the expert expects. But for now, the Russian population prefers to look for opportunities to open foreign currency accounts and withdraw dollars and euros there. As Shulgin recalls, in July, citizens exported a record amount of foreign currency abroad in the amount of 237.1 billion rubles through banks that did not fall under sanctions. This trend may continue in August and September, he predicts.