The yuan has become the most popular currency in Russia: what are the risks?

Russians’ investments in Chinese money increased 2.5 times over the year

Russians have stopped trusting the dollar and euro. The most popular currency in the domestic market in 2023 was the Chinese yuan. In principle, this seems logical: why invest in foreign financial instruments if the West has declared economic war on our country, and growing inflation does not allow the population to focus on other means of increasing income? Celestial currency notes are gradually replacing savings in euros and dollars in the general savings wallet of Russians. However, the question remains: will such a reorientation of investments turn out to be profitable?

Yuan is becoming an increasingly popular currency on the Russian market. About a third of our fellow citizens plan to actively purchase Chinese banknotes next year. Compared to December 2022, when, according to surveys by a well-known financial platform, only 9% of our compatriots noted that yuan made up the majority of their foreign currency savings, now Chinese money has already reached 22%.

The mood of the electorate is confirmed by the state’s economic policy. According to Vladimir Putin, by the end of 2023, Russia paid for approximately 83% of its foreign purchases in Chinese banknotes, and imports from China mainly involved payment in “wooden” notes.

In 2021, when servicing our exports, 87% were in dollars and euros. The ruble accounted for 11-13%, and the yuan 0.4%. Now the previously reference statistical figures have changed. As of September 2023, the ruble accounted for 40%, the yuan 33%, and the dollar and euro together only 24%.

It is obvious that the increase in trade turnover is due to the refusal of Western powers to purchase Russian energy resources – only official sales to the countries of the Old World in the first half of this year decreased by about five times. As a result of Western sanctions, G7 members banned Russia from exporting oil at prices above $60 per barrel.

Asian powers did not agree with Western demands, and, taking advantage of the situation, increased the purchase of Russian hydrocarbons. In the first half of the year, the volume of oil supplied to the east from our country reached a maximum of 3.6 million barrels per day (more than a third of foreign supplies from Russia). Importers pay slightly less for Urals supplies than for Brent, practically ignoring Western sanctions.

“After the freezing of Russian assets in dollars and euros, these currencies became dangerous,” notes Sergei Suverov, investment strategist at Arikapital Management Company, associate professor at the Financial University under the Government of the Russian Federation. — Yuan looks like a reasonable alternative. Chinese money, used throughout the world, can confidently be called a global reserve currency. China is the second largest economy on the planet. Beijing closely monitors the exchange rate of its currency, trying to avoid sharp fluctuations.”

However, the abandonment of dollars and euros in favor of yuan in Russia’s international trade relations is also fraught with certain risks. Investments in the yuan are risky from the point of view of the slowdown of the Chinese economy: since March 2022, the value of the Chinese currency has lost more than 10% against the dollar, reaching its lowest levels since the beginning of 2008.

“The yuan, in fact, has long been an international reserve currency,” states Suverov. “However, its volume in the gold and foreign exchange reserves of most developed countries of the world continues to remain at an extremely small level – a total of less than 3%. For comparison, the volume of the dollar in the same spaces reaches 60%, and the volume of the euro exceeds 20%. You can hope as much as you like for the development of the Chinese economy, but you should be aware of the dangers that investments in the production and trading capacities of the Celestial Empire are fraught with.”