FX.co ★ Russian sanctions boost yuan's global appeal

The Chinese currency is becoming increasingly attractive for international transactions, driven by anti-Russian sanctions.

According to analysts, restrictions imposed on Russian companies and citizens have boosted the yuan's appeal as an alternative in international trade.

According to a recent report by the European Bank for Reconstruction and Development, the escalation of geopolitical tensions has enhanced trade ties within blocs of "geographically aligned countries". As a result, emerging market currencies have become widely used in trade transactions traditionally dominated by the US dollar.

"Sanctions made it costly to process transactions in Western currencies. This increased the attractiveness of trading in alternative currencies, including the renminbi," EBRD economists said. The bank estimated that thanks to the sanctions, the yuan increased its share in Russia's total international trade nearly tenfold, from 3.5% in 2021 to an impressive 32.7% in 2023. In addition, representatives of the BRICS countries – Brazil, Russia, India, China, and South Africa – announced a more active use of non-dollar currencies in their trade settlements.

The EBRD’s latest regional economic prospects report shows a notable change in the trade structure caused by sanctions. In particular, intermediated trade through the Caucasus (Georgia, Armenia) and Central Asia (Kazakhstan, Uzbekistan, Kyrgyzstan) has intensified. These regions have seen a significant influx of money, businesses, and skilled personnel from Russia following the start of the Russian-Ukrainian conflict. Armenia, Georgia, and Kyrgyzstan have recorded a sharp increase in banking-sector deposits by 60%-70% compared to 2021 figures. However, as Russian migrants return home or move to other countries, deposits also decline.

"Geopolitical fragmentation of trade has also coincided with notable shifts in FDI patterns, with increasing investment in 'bridging' economies that maintain close trade ties with rival blocs of economies," the bank noted. In 2023, capital flows from Russia to Central Asia increased sharply, with the role of "bridging" trade strengthening. Russian capital investment in logistics and retail companies engaged in intermediated trade surged last year, the EBRD summed up.