Russian companies ‘de-dollarize’ and switch to yuan, other Asian currencies

Reuters/Petar Kujundzic

Reuters/Petar Kujundzic

Russia will start settling more contracts in Asian currencies, especially the yuan, in order to lessen its dependence on the dollar market, and because of Western-led sanctions that could freeze funds at any moment.

“Over the last few weeks there has been a significant interest in the market from large Russian corporations to start using various products in renminbi and other Asian currencies, and to set up accounts in Asian locations,” Pavel Teplukhin, head of Deutsche Bank in Russia, told the Financial Times, which was published in an article on Sunday.

Diversifying trade accounts from dollars to the Chinese yuan and other Asian currencies such as the Hong Kong dollar and Singapore dollar has been a part of Russia’s pivot towards Asian as tension with Europe and the US remain strained over Russia’s action in Ukraine.

Since Crimea voted to rejoin Russia, the US government has imposed Cold War era sanctions, which have hurt the Russian economy and have slowed lending and investment activity.

VTB, Russia’s second largest bank, intends to increase the amount of non-dollar settlements, according to the bank’s president Andrey Kostin.

In May, Russia’s biggest gas producer, Gazprom, announced it wants to start trading shares in Singapore, obtaining a listing as early as July, the company said. Just before that Russia’s state-owned gas giant inked a $400 billion gas deal with China.

“Given the amount of bilateral trade volume with China, of course, we are working on the expansion of settlement in rubles and yuan,” Kostin said at a meeting with Russian President Vladimir Putin, adding this is a goal the bank has been moving towards since May.

Russia's Universal electronic card based on PRO100 payment system, RIA Novosti/Maksim Bogovid

Russia’s Universal electronic card based on PRO100 payment system, RIA Novosti/Maksim Bogovid


Russia’s main tasks are expanding currency operations and creating Russia’s own forthcoming national payment system.

The Central Bank of Russia is working on creating a national payment system, which both China and Japan have already established, and is expected to be up and running within four months.

Alexander Dyukov, the CEO of Gazprom Neft, the oil division of Gazprom, has been very vocal about ditching the dollar over escalating pressure from the West.

“This shows that in principle there is nothing impossible – you can switch from dollar to euro and from euro, in principle, to rubles,” Vedomosti quotes Mr. Dyukov.

He has also said the company has discussed with customers the possibility of shifting contracts out of dollars, while Norilsk Nickel told the FT that it was discussing denominating long-term contracts with Chinese consumers in renminbi.

As of now, Russia is not preparing any countermeasures against the West, Putin’s chief advisor to the EU, Andrey Belousov has said.

“As long as Russia is not subject to systemic sanctions, which could bring an artificial limit to our economy’s access to dollars . . . then I don’t think Russia will take any steps in order to bring about artificial de-dollarization,” the FT quoted Belousov as saying.

Another swift move Russia has made towards Asia is the establishment of a joint rating agency with China, to replace more “biased” agencies like Fitch, Moody’s, and Standard & Poor’s.

Defying the dollar Russia & China agree currency swap worth over $20bn

Yuan banknotes (Reuters / Petar Kujundzic)

Yuan banknotes (Reuters / Petar Kujundzic)

Published: October 13, 2014

The central banks of China and Russia have signed a 3-year ruble-yuan currency swap deal up to $25 billion, in order to boost trade using national currencies and lessen dependence on the dollar and euro.

On Monday, China’s Central Bank announced the 150 billion yuan (815 billion ruble) currency swap between the Russian ruble and Chinese yuan. In terms of the Chinese currency that is $24.5 billion, and in Russian rubles, $20.1 billion.

“We need to expand the practice of using national currencies in trade. Currently they only account for 7 percent of turnover,” Prime Minister Dmitry Medvedev said at the 18th annual Russian-Chinese Commission, also attended by Chinese Premier Li Keqiang.

The deal is valid for 3 years, and can be extended if both Russia and China agree. The draft currency swap was settled in August, but details on the size of the deal were sketchy.

Using more local currencies will speed up trade between the two countries who are aiming to reach $100 billion by 2015. Trade between Russia and China is already nearly $90 billion and is scheduled to hit $200 billion in the next six years.

Cooperation between Russian and Chinese banks is also on the rise, and China’s Import Export Bank, which is 100% state owned, has pledged to help Russian banks now cut off from Western capital markets, due to the latest round of sanctions.

The Export-Import Bank (Exim) has agreed to establish a credit line equivalent to $2 billion for Russian state bank VTB, and has also signed agreements with VEB (Vnesheconombank), and the Russian Agricultural Bank.

The credit lines can be used to finance imports from China, from agriculture to high tech equipment.

Medvedev and Li signed over 40 other agreements at the meeting, including outlining plans to add another pipeline from Russia to China. Li is in Moscow for a three-day visit.


Politically-motivated sanctions see shift from dollar – Putin

Russian President Vladimir Putin (RIA Novosti / Vitaly Belousov)

Russian President Vladimir Putin (RIA Novosti / Vitaly Belousov)

The sanctions imposed on Russia by the US and the West, among other financial blunders, are mistakes that have triggered the world to de-dollarize. Russian President Putin describes this as like “cutting down the branches, upon which they are sitting.”

Putin said that sanctions have an overall negative effect on the entire global community, and actually motivate countries to seek financial sovereignty from the status quo.

President Putin was speaking at 11th annual meeting of the Valdai International Discussion Club in Sochi, Russia. The panel was fittingly called, “The World Order: New Rules or a Game without Rules.”

“Politically-motivated sanctions have intensified the trend of economic and financial sovereignty, the desire of countries and regions would like to secure themselves against outside pressure,” he said.

Putin at Valdai – World Order: New Rules or a Game without Rules (FULL VIDEO)

Dependence on a single global power will decrease, and new reserve currencies, such as the yuan and ruble, are already starting to emerge.

“Now, an increasing number of countries are attempting to move away from dollar dependence and to establish alternative reserve currencies and settlement systems,” the President said.

Maintaining global equilibrium becomes difficult when everyone stops playing by the rules, the President said, citing the precedent of the Cyprus bailout and the “politically-motivated” sanctions against Russia over its action in Ukraine.

“Now they risk losing confidence as the leaders of globalization. My question is- why would they do it? The prosperity of the US depends on its investors, those that own dollar debt,” he said.

“I think our American counterparts are sawing the branch they are sitting on,” Putin said.

Russia’s President Vladimir Putin (L) and US President Barack Obama (AFP Photo / Eric Feferberg)

Russia’s President Vladimir Putin (L) and US President Barack Obama (AFP Photo / Eric Feferberg)

Putin warned of the danger of mixing politics and economics, especially when nations are so deeply financially intertwined.

The West and Russia have increasingly become divided over the crisis in Ukraine, in which Russia accuses foreign powers of stirring up sentiment, and the West seeks to punish Russia for reclaiming Crimea.

US and EU sanctions against Russia include bans on long-term loans from Western capital markets, and bars the import of high tech oil equipment and technology, as well as weaponry to Russia.

Despite the cold diplomatic exchanges in the past year, Russia is ready for dialogue to normalize relations, the President said.

The annual panel includes the President and Prime Minister of Russia, who meet with the club members, both Russian and foreign experts in international affairs.

The club was created in September 2004 to promote dialogue between the Russian and international intellectual elite, and meets each year in a different Russian region. The name ‘Valdai’ comes from the lake where the first conference was held in Veliky Novgorod.

In the last decade, over 600 experts from 47 countries have participated in the talks.