The Bank of Russia has announced that it will be increasing its sales of yuan on the forex market, a move aimed at maintaining economic stability amidst Western sanctions. In a statement released on Friday, the regulator stated that the quantity of Chinese currency to be sold will depend on the ruble sum withdrawn from the National Wealth Fund (NWF) for investment in authorized financial assets within the country during the preceding six months.
These additional sales of yuan will commence on August 1, in addition to the regular operations with foreign currency. The regulator further specified that the transactions will be conducted through the currency section of the Moscow Exchange using a Chinese yuan-ruble instrument with a settlement period of ‘tomorrow’. It was also mentioned that the total volume of operations over a six-month period cannot exceed 300 billion rubles ($3.3 billion).
Based on the Central Bank’s estimates, between January 1 and June 30, the government withdrew around 288 billion rubles ($3 billion) from the NWF. This implies that starting from August 2023 until January 31 next year, the Central Bank will sell around 2.3 billion rubles ($25 million) worth of yuan daily, subject to fluctuations in the exchange rate.
To minimize the impact of these operations on the exchange rate, the Central Bank plans to buy or sell foreign currency evenly throughout each trading day of the month. It is worth noting that the NWF, which accumulates revenue from oil exports, was initially established to support the national pension system and provide assistance in covering budget deficits when necessary.
The decision to increase yuan sales reflects Russia’s efforts to diversify its foreign currency holdings and reduce its dependence on the US dollar, which has been hindered by Western sanctions. These sanctions have limited Russia’s access to international financial markets and restricted its ability to borrow in dollars.
By increasing the sales of yuan, the Bank of Russia aims to strengthen the country’s financial resilience and mitigate the potential impact of further sanctions. Additionally, it aligns with Russia’s strategy to deepen economic ties with China and promote the use of national currencies in bilateral trade.
Overall, the Bank of Russia’s decision to expand its sales of yuan on the forex market demonstrates the country’s commitment to ensuring economic stability in the face of Western sanctions. Through diversifying its foreign currency holdings and strengthening ties with China, Russia aims to safeguard its economy and reduce its vulnerability to external pressures.