Author: Elena Fabrichnaya
MOSCOW (Reuters) – The impending expiration of a U.S. license allowing transactions involving pillars of Russia’s financial infrastructure could make it more challenging and costly to conduct transactions for Russian companies, import and payments sources told Reuters.
The yuan, which hit a one-year high against the ruble on Wednesday, has become the most traded foreign currency in Moscow since Russia’s decision to send troops to Ukraine in February 2022 – a dollarization policy.
With Chinese banks concerned about the risk of secondary sanctions related to transactions with Russian entities on Washington’s blacklist and the Bank of Russia reluctant to continue pumping yuan liquidity through currency swaps, some importers fear that payment problems between Russia and China could worsen. worsen.
“The situation may change after October 12,” an import official told Reuters. “A sudden shortage of yuan or a complete refusal by Chinese banks to accept payments from Russia is possible.”
LACK OF LIQUIDITY OF YUAN
The U.S. Office of Foreign Assets Control (OFAC) imposed sanctions on the Moscow Stock Exchange and its clearing agent, the National Clearing Center (NCC), in June, leading to an immediate halt to dollar and euro trading on Russia’s largest exchange.
OFAC issued a license that expires on October 12 that allows for the liquidation of certain transactions. OFAC did not respond to a request for comment when asked whether another license extension was possible.
Upon expiration, all conversion operations, including for subsidiaries of Chinese banks, will be halted and all open currency positions through the Moscow Stock Exchange will be closed and halted, a payments market person said.
“As a result, the yuan liquidity supply situation will become even more difficult,” the person said.
Payments worth billions of yuan are being held up as Chinese state-owned banks close deals with Russia, Reuters reported last month, while many deals face long delays, increased logistics costs and higher agent fees.
The matter is complicated by the fact that the Russian branch of Austria’s Raiffeisen Bank International has refused to make payments to China since September, said a person familiar with the matter.
The RBI declined to comment.
SYSTEMIC RISK
The central bank acknowledged payment problems and urged commercial lenders to reduce their yuan loan portfolios as it worsens the yuan liquidity shortage, forcing the central bank to replenish short-term yuan stocks and increasing the swap rate and market volatility.
“The central bank is trying to somehow contain the yuan shortage as swap rates… reached as high as 120% last week,” said Finam brokerage analyst Alexander Potavin, describing the risk as systemic for Russia’s largest companies.
Central bank data showed banks cut swap debt to 15.4 billion yuan ($2.19 billion) on Wednesday from a high of 35.2 billion yuan in early September.
“If yuan trading on the Moscow Stock Exchange is truly canceled, then the ruble will not constitute any benchmark,” Potavin said. “Yuan quotations will be based on the results of transactions in the interbank market, which is completely opaque, manipulated and volatile.”
($1 = 7.0184 Chinese yuan)
