Attack on dollar dominance
Russia sells government bonds in yuan for the first time
For the first time, Russia is taking on debt in Chinese currency. The Moscow-Beijing axis is becoming closer, and the message is unmistakable: the dollar is no longer undisputed.
It is a step with a signal effect: Russia is issuing government bonds in Chinese yuan for the first time. December 8th was named as the start date for the sale of the securities on the domestic market. The move makes it clear how much Russia has now been pushed out of the Western economic area and how tightly it is tied to China.
Since the start of the war of aggression against Ukraine and the subsequent sanctions, Russia has radically redirected its energy exports. Oil and gas are now flowing to China on a large scale – and payments are often made in yuan. Russian banks are therefore sitting on large yuan balances, which the state is now taking over and exchanging for bonds. According to Bloomberg, Russian oil exports to China have recently declined temporarily despite close cooperation, among other things because of new US sanctions.
What Moscow plans to do with the Yuan
What strategy Russia is pursuing with the Yuan it has taken over remains officially open. Jörg Krämer, chief economist at Commerzbank, said in an interview with ARD financial editorial team two likely motives: On the one hand, Moscow could expand its foreign exchange reserves in Chinese currency – a protective cushion for tighter trade with Beijing.
On the other hand, it is conceivable that the government will use the yuan to buy technology and components in China, “such as semiconductors or other components for the defense industry.” Above all, both show that Russia’s economy is now heavily oriented towards China and the scope for maneuver is becoming smaller.
Growing dependence on China
Economist Krämer sees Russia’s move as a clear geopolitical shift: “China is the dominant power in this relationship, Russia is more of an appendage,” he says. It is no coincidence that people often talk about the “gas station state of China”.
Krämer believes that it is obvious that Russia is becoming even more dependent: Moscow is losing economic leeway, while at the same time Beijing’s influence is growing.
Signal against the dollar – but no real alternative
According to Krämer, both countries have one thing in common: the rejection of the West and the desire to escape dollar dominance. The new yuan bond is a visible sign of this.
But despite its symbolic power, Krämer believes the yuan is far from being a real reserve currency. “The yuan is not freely convertible. Balances cannot easily be withdrawn from China. This massively limits its role,” he says.
Why the Yuan is rarely used internationally
Krämer points out that China is already one of the largest economic powers in the world – and, depending on calculations, even the largest industrial power. “And all of this was possible even though they don’t have a world reserve currency,” he says. China’s success is not proof that the yuan is gaining global importance.
Even countries that are critical of the West only use the yuan to a limited extent. A global reserve currency requires trust, the rule of law, transparent markets and the ability to move money freely at any time. The Chinese financial system lacks all of this.
The result: Russia and China can increasingly organize their trade independently of the West, but the global relevance of the yuan remains low.
The dollar remains the reserve currency – for now
So how long will the dollar remain dominant? According to Krämer’s assessment, at least another “ten, twenty or thirty years”. Not because it is flawless – but because there is simply no real alternative.
In the short term, however, the dollar could remain under pressure. Many economists expect a period of weakness, especially if the US Federal Reserve comes under political influence. But that doesn’t change much for the long-term structure of the financial world.
