Russia Turns to Yuan as Dollar Use Declines

Russia’s de-dollarization struggles continue as the Yuan weakens, limiting trade options.

Russia is in an incredible predicament as it attempts to maintain economic stability while balancing the de-dollarization movement. Putin’s administration maintains a dual-pronged strategy to depreciate the US dollar. The action is detrimental to both the domestic economy and the Russian currency, the Russian ruble. To quell the de-dollarization movement, Russia is compelled to utilize the Chinese Yuan, which is experiencing a significant depreciation against the US dollar.

The only remaining options for the Central Bank of Russia to retain as reserves are gold and the Chinese Yuan. Reducing its reserves will inevitably hurt its economy, precipitating a tumultuous de-dollarization agenda. Russia’s reliance on the Chinese yuan for reserves is risky, given that the currency is 2.1% weaker against the US dollar year-to-date in 2024.

Moreover, not even India, a close ally of Russia, is willing to resolve crude oil payments in Chinese Yuan. Even though India has already endorsed the de-dollarization agenda to promote domestic currencies for international transactions, this occurs.

De-dollarization Objective: The Plight of the Chinese Yuan

Russia and China’s de-dollarization efforts are detrimental to their respective economies. The Chinese Yuan and other domestic currencies continue to depreciate against the US dollar, placing Russia and China’s economies on a precarious precipice.

“These currencies’ exchange rates are exceptionally volatile.” According to a report by the Russian Central Bank, several of these countries impose restrictions on the flow of capital, which hinders the utilization of the markets due to their low liquidity. These factors predetermine the Chinese yuan’s pivotal role in the formation of reserve assets.” In summary, the de-dollarization effort demonstrates its negative financial implications for China and Russia.