Russia turns to yuan amid dollar crunch, faces severe shortfall

Russia has had difficulty accessing dollars and euros after the US imposed sanctions on the Moscow Stock Exchange. It decided to replace Western currencies with the Chinese yuan. The issue is a chronic shortage of yuan in the Russian financial system, and the situation could worsen for Vladimir Putin.

The Chinese yuan became the most important settlement currency in Russia when the West's new sanctions on the Moscow Stock Exchange, imposed due to Vladimir Putin's military aggression against Ukraine, came into effect last week. As a result, Russians lost easy access to dollars and euros.

The Kremlin's problem is that "there is a chronic shortage of Chinese currency in the Russian financial system," as Mikhail Vasiliev, chief analyst at Sovcombank, stated for the portal Frank RG. This is because Russian companies acquire yuan mainly through trade, not from Chinese banks.

"As a result, Russian banks are raising deposit interest rates in yuan to attract Chinese money from individuals and companies and to issue loans in yuan, which are in high demand," reports "Rzeczpospolita."

Moreover, there are concerns in Russia that the Moscow Stock Exchange may be forced to stop trading the Chinese currency as well.

The likelihood is high because Chinese banks may cease cooperation with the Russian stock exchange and the National Settlement Depository after the trading platform and its structures fall under American sanctions, notes Sergey Romanchuk, former president of the Union of Financial Institutions of Russia, quoted by "Reczpospolita."

At the end of last week, the main banks in Kyrgyzstan suspended money transfers to and from Russia due to currency rate instability and payment issues, reported "The Moscow Times". This is an unexpected blow from Vladimir Putin's ally.

In April, the Polish Center for Eastern Studies (OSW) emphasized that "Russia clearly views Kyrgyzstan as an important ally in Central Asia." This is evidenced by the fact that last fall, after the International Criminal Court issued an arrest warrant for Vladimir Putin, the Kremlin leader went to Bishkek. At the same time, Kyrgyz authorities demonstrate sympathy towards Russia's authoritarian plans.