Yuan Begins Trading Against the Russian Ruble

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Nov. 23 – The internationalization of the Chinese yuan took another step forward by beginning its trade against the Russian ruble in the country’s interbank market on Monday.

The China Foreign Currency Trading Center announced that the interbank yuan-ruble trade will be conducted in the form of spot exchange transactions and will follow the market maker rule. According to the announcement, The People’s Bank of China authorizes the Foreign Exchange Trading Center to announce a middle rate for the pair at 9:15 a.m. local time every business day. The pair can float 5 percent above or below the middle rate; wider than the 3 percent trading band currently in place for yuan trading against other non-U.S. dollar currencies.

China began trading the yuan against the currencies of other emerging economies on August 19 this year by first allowing trade with the Malaysian ringgit. In addition, traders can also buy and sell the yuan against the U.S. dollar, the euro, the yen, the Hong Kong dollar and the British pound.

Speaking at a press conference on Monday, the superintendent of China’s Foreign Currency Trading Center said that China’s currency trade with other emerging economies is a “necessary experience” and believes the yuan-ruble trade will strongly bolster bilateral trade and investment between China and Russia. He also mentioned that China will consider opening up the yuan-ruble forward exchange or swap transaction depending on market demand.

Although the yuan recently failed the “freely usable” test for the IMF’s Special Drawing Rights valuation basket, the Chinese government does not seem to be slowing down its push for a more globalized currency.

Li Daokui, a member of the central bank’s Monetary Policy Committee, said during the Lujiazui Forum held in Shanghai this year that the yuan’s internationalization is “inevitable.” He estimates that the yuan will be entirely involved in global currency markets by between 2020 and 2025. Li says the government will consider opening up more avenues for foreign investors to accelerate the yuan’s globalization.

China is also encouraging a greater magnitude of cross-border transactions to reduce the yuan’s dependence on the U.S. dollar. Last year, Premier Wen Jiabao began calling for increased cooperation with other Asian countries to reduce the risks of U.S. dollar dominance in China’s asset holdings. The central bank also commented last year that China will be working for a more “normalized” and flexible exchange rate system and the yuan should be pegged to a basket of currencies rather than just the U.S. dollar.

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1 thought on “Yuan Begins Trading Against the Russian Ruble

    Chris Devonshire-Ellis says:

    It means that China and Russia have agreed to ditch the US dollar as a currency to settle transactions between them. If anyone has wondered why transactions say in Hong Kong dollars to Euros go through a bank in New York, its due to this interbank system which allows banks to (a) use your money for a few days; and (b) charge a handling fee.
    What China and Russia are doing is scrapping that and arranging their own interbank system. While that may not have huge global significance (China-Russia trade is about USD60billion per annum) as an experiment to build up an alternative system to USD routing it has clear long term implications. – Chris

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