Summary
Russia is facing significant challenges in accessing Chinese yuan (RMB) due to the impending expiration of a key U.S. Treasury license that has allowed limited yuan transactions. This situation is exacerbated by increasing hesitance from Chinese banks to engage in business with Russia, leading to a severe shortage of yuan in the country.
The U.S. Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions that effectively shut down trading in major currencies, including the dollar and euro, on the Moscow Exchange (MOEX). A transitional license issued in August provided a temporary reprieve for yuan transactions, but this license is set to expire on October 12, 2024. As a result, Russian firms may struggle to conduct international trade using yuan, which has become critical for Russia since the onset of sanctions following its invasion of Ukraine in February 2022. Reports indicate that Chinese banks are increasingly reluctant to process yuan-denominated payments from Russia, citing concerns over U.S. secondary sanctions. This has led to a liquidity crunch, with Russian banks facing rising fees and delays in cross-border transactions, further complicating Russia’s economic landscape.
Implications of the License Expiration
With the expiration of the U.S. Treasury license, all conversion transactions involving Chinese banks will cease, potentially leading to a complete refusal by these banks to process payments from Russia. This could drive an abrupt shortage of yuan, which has become the primary currency for international trade in Russia amid Western sanctions.
Economic Consequences
The scarcity of yuan could result in increased costs and volatility for Russian businesses, which have already been grappling with the effects of international sanctions. As Chinese banks tighten compliance with U.S. sanctions, the operational landscape for Russian firms may become even more challenging, with significant implications for trade and economic stability in Russia.
Russia's Economic Lifeline From China Is Expiring
Oct. 8 / Newsweek / Highlights the urgency of the U.S. Treasury license expiration and its implications for Russian yuan transactions, providing insights from industry insiders that underscore the growing liquidity crisis in Russia. Offers a thorough exploration of the evolving relationship between Russian and Chinese banks amidst sanctions, making it a valuable source for understanding the complexities of this economic landscape. “ The expiration of a U.S. government license this week might make it even more difficult for Russian firms to pay using Chinese yuan (RMB) now the most-traded...
It could soon get a lot harder for Russia to deal in Chinese yuan
Sep. 26 / Insider / Addresses the immediate consequences of the license expiration, emphasizing the depletion of yuan reserves and the hesitance of Chinese banks, while citing authoritative sources for credibility and depth. However, it lacks the nuanced insights present in other analyses, making it less comprehensive in covering the broader implications for Russian trade. “ A key US license allowing Russian yuan transactions is set to expire mid-October. That could make Chinese banks more hesitant to deal in Russia, worsening...