Russian Economy Forced into China Pivot after Sanctions Bombshell

Moscow's economic ties with Beijing have tightened even more after Russia's Central Bank announced the yuan-ruble exchange rate will become a benchmark for other currency pairs.

The bank's statement on Thursday followed a turbulent day in which the Moscow Exchange (MOEX) suspended trading in dollars and euros following a new raft of sanctions by the United States aimed at thwarting Russia's war effort in Ukraine.

Referring to when Moscow's full-scale invasion started, the central bank said, "Over the past two years, the role of the U.S. dollar and the euro in the Russian market has been consistently declining," business newspaper Vedemosti reported.

The bank said that was because of a "redirection of trade flows to the East and the change in the currency of settlements to rubles, yuan and other currencies of friendly countries," referring to those nations that have not joined Western sanctions against Russia.

"The exchange rate of the yuan/ruble will set the trajectory for other currency pairs, will become a benchmark for market participants," it said. The central bank also announced a suspension of trading in the Hong Kong dollar because it is pegged to the greenback.

Officially neutral on Vladimir Putin's invasion, China has greatly increased its trade with Russia, in 2023 reaching a record $240 billion while Putin has consistently touted a pivot away from the Western-dominated global financial system.

"The exchange rate of the yuan/ruble will set the trajectory for other currency pairs, will become a benchmark for market participants," the bank's statement added, noting last month that the share of the yuan in trading on the Moscow Exchange was 54 percent, making it the main currency in exchange trading.

Dollar-ruble trading volume on MOEX is around 1 billion rubles ($11 million) a day, euro-ruble trading hovers at around 300 million rubles ($3 million), much less than yuan-ruble daily volumes which regularly top 8 billion rubles ($90 million), CNN reported.

Earlier, the Moscow Exchange had suspended trading in dollars and euros after the U.S. Office of Foreign Assets Control (OFAC) released details of its latest round of sanctions which included targeting Russian banks that act as intermediaries in dollar trading on the Russian foreign exchange market.

It means that banks, companies and investors cannot trade either currency via a central exchange and will instead have to rely on over-the-counter deals conducted directly between two parties.

The new sanctions will take full effect on August 13, although companies and individuals will still be able to buy and sell euros and dollars through lenders. Meanwhile, the central bank said all deposits in foreign currencies would "remain safe."

Newsweek has contacted the Russian Central Bank for further comment.

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