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 foreign currency in the sanctioned country.
U.S. Treasury’s Office of Foreign Assets Control (OFAC) sanctions against the Moscow Exchange (MOEX) and its subsidiary, the National Clearing Center (NCC), took effect on June 13.
This not only led to the suspension of trading the U.S. dollar but also euro and Hong Kong dollar, which rely on the same clearinghouse infrastructure for processing trades. Transactions involving these currencies shifted to the over-the-counter market, increasing costs and volatility for Russian businesses and individuals dealing with them.
A license issued by the OFAC in August has permitted a wind-down period for limited, specific transactions to continue during a transitional period before the full ban goes into effect on Saturday.
While the yuan is not the only foreign currency being targeted by the sanctions and subsequent license, yuan trading has been a particular focus because it has become Russia’s primary currency for international trade after the ruble.
Some industry insiders have warned the deadline could cause even more obstacles in Russian yuan-denominated trade.
“The situation may change after October 12,” Reuters cited one such source as saying on condition of anonymity. “An abrupt shortage of yuan or a complete refusal to accept payments from Russia by Chinese banks is possible.”
In the wake of international sanctions levied on Russia since President Vladimir Putin’s February 2022 invasion of Ukraine, Moscow became largely cut off from global markets dominated by the U.S. dollar and euro and has leaned heavily on the yuan to conduct trade
Russian media has cited local frustrated traders who complained their cross-border transactions in yuan were increasingly delayed, and then rejected by Chinese banks wary of the Biden administration’s secondary sanctions.
In August, Russian media reported that approximately 98 percent of Chinese banks now refuse to process RMB-denominated settlements.
Initially, this was limited to major banks, but more local Chinese banks have since tightened compliance with U.S. sanctions to protect themselves from secondary penalties. This reduced access to RMB has triggered a liquidity crunch in Russia, which appears to have led to recent fee increases by Russian banks.
The upcoming expiration of the U.S. Treasury’s license has generated significant concerns about Russia’s access Chinese yuan. The license has allowed yuan transactions to continue in a limited capacity despite broader sanctions.
The Russian finance ministry and Chinese foreign ministry did not immediately respond to written requests for comment.
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