April 25, 2024

Otkritie Bank Claims Russians Are Buying Chinese Yuan

The Finance Ministry of Russia is planning on re-starting its foreign exchange interventions, using the currencies of ‘friendly nations’. Otkritie, the state bank, said that this had pushed Russians to diversify their holdings by buying the Chinese yuan and moving away from euros and US dollars.

Yuan demand goes up

Since Western sanctions had been imposed against Russia due to its conflict with Ukraine, authorities in Moscow had banned forex-buying in the country for protecting the financial sector. Otkritie is also under sanctions. The state bank asserted that on May 20th, the restrictions had been lifted and since then, there has been an eightfold increase in the demand for the Chinese yuan.

The state bank further added that purchases of other currencies like the Swiss franc and British pound had gone up 2.5 times, but the demand for other currencies that had once been popular had gone down, such as the euro and the US dollar.

Market analysts said that in the last few years, the Chinese yuan has remained stable and has exhibited low volatility. Moreover, it can become an excellent tool for those who are looking to diversify their forex holdings.

Ruble-yuan trading

The Moscow Exchange disclosed that trading volumes of the Ruble-yuan currency pair had reached a record high of 44.3 billion rubles. This is because the finance ministry wants to curb the growth in the ruble. Therefore, it has lifted the restriction on forex buying and is now encouraging people to buy what it calls ‘friendly’ currencies.

It was back in 2013 that the ruble-yuan currency pair had been launched on the Moscow Exchange and its daily trading volumes in April had hit 25 billion. Early this year, Russian authorities halted the purchase of foreign currencies through market interventions. They had used a budget rule that was aimed at protecting the Russian ruble from external movements in order to reduce the pressure on it, as it was recording a sharp decline.

Ruble goes up

But, the Russian currency has made an excellent recovery, as it reached a high of seven weeks just a week earlier. As a matter of fact, it has become the best performing currency globally this year, even though it is 20% down against the US dollar after hitting peaks last month.

This was because officials had become concerned about the ruble’s strength because this can bring down the income Russia generates via the export of commodities and services in exchange for euros and dollars. The Russian finance ministry has not announced how it will go about launching the forex buying process.

According to economists, the ideal level for the ruble against the US dollar would be somewhere between 70 and 80. But, the currency has strengthened significantly this year and is trading in the 50s for now, which is giving rise to concerns. Furthermore, inflation in the country is also slowing down and this is also worrying lawmakers. The Russian central bank is reducing interest rates in order to combat this issue.

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