Russia halts ruble support as Central Bank struggles with yuan transactions

Starting Sep. 6 and continuing through Oct. 4, the Ministry of Finance will purchase foreign currency and gold worth 173 billion rubles (approximately 8.2 billion rubles per day) under the country's fiscal rules.

At the same time, the Central Bank is selling about 8.4 billion rubles' worth of foreign currency daily, compensating for previous spending from the National Welfare Fund (NWF). Together, their transactions result in a net sale of just 200 million rubles’ worth of yuan per day—a relatively insignificant amount in the context of the currency market, according to The Moscow Times.

In August, Russia's Central Bank was selling yuan on behalf of itself and the Ministry of Finance at a rate of 7.3 billion rubles per day. While the Central Bank’s sales are expected to remain consistent through the end of the year, the Finance Ministry’s purchases fluctuate each month based on expected oil and gas revenues and the accuracy of prior forecasts.

In July, the Finance Ministry miscalculated, collecting 142 billion rubles less than expected, leading to a sharp reduction in purchases in August—down to just 1.1 billion rubles per day. For September, however, the ministry expects additional oil and gas revenues of 162 billion rubles above the baseline, resulting in more than a sevenfold increase in purchases.

Aleksey Antonov, head of investment consulting at Alor Broker, anticipates a “gradual devaluation” of the ruble this fall. The near cessation of Central Bank sales could weaken the ruble’s exchange rate, agrees Yegor Susin, managing director of GPB Private Banking, who adds that it will also remove the excess supply of yuan on the exchange.

Previously, reports emerged that the Russian branch of a major Chinese bank had stopped working with clients from Russia. Russia's difficulties with Chinese banks began in late 2023, influenced by an executive order from U.S. President Joe Biden, which allowed the U.S. Treasury to impose secondary sanctions on third-country banks for collaborating with sanctioned Russian companies and aiding Russia’s defense sector.

In April 2024, several Chinese banks stopped accepting yuan payments from Russia due to concerns over secondary U.S. sanctions. By July 2024, Chinese banks had declared Russian yuan "dirty" and refused to accept them. Currently, about 80% of yuan-denominated payments are returned to Russia.

Russian businesses have complained that even smaller Chinese banks are rejecting their payments.

Additionally, Bloomberg reported that Russia's Central Bank is preparing for a scenario in which yuan trading on Russian exchanges could be halted. Sources close to the regulator suggest that Chinese banks facilitating these transactions are gradually winding down their cooperation with Russia’s “toxic” exchanges.