New administration under Samia Suluhu gives hope after 5 years of hopelessness

Kweli, tumetoka mbali!

Moscow has jettisoned concerns about giving China too much leverage over its economy, said Alexander Gabuev, a senior fellow at the Carnegie Endowment for International Peace.

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“Now it’s the only rational choice for Russia and for Putin,” Mr. Gabuev said. “If depending on renminbi is the lifeline that helps you to be less exposed and less dependent on hostile currencies, then you take this route.”

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A spokesperson for the Russian Ministry of Finance said the yuan is “taking an increasingly important role” in its sovereign-wealth fund, which doubled the share of yuan it can hold to 60% in December. The ministry started selling yuan in January to plug its widening budget deficit.

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The share of Russian exports paid for in yuan rose to 14% by September, according to data from the central bank. That is up from 0.4% before the start of the war.

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Russia began cutting its dependence on the dollar in 2014 after its annexation of Crimea. By 2018, as the U.S. imposed additional economic sanctions, the country began to sell its holdings of U.S. Treasury bonds and explore trade in rubles and other currencies.

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Russians don’t face an outright ban on using dollars or euros, and non-sanctioned banks continue to do business in foreign currencies.

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Booming trade between Russia and China added to the yuan’s appeal. China has become a major buyer of Russian oil that is shunned by the West, while Russia has grown more dependent on China for semiconductors and other technology.

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Russian companies have also turned to the yuan and issued bonds in the Chinese currency worth the equivalent of more than $7 billion last year, according to Refinitiv data. In recent weeks, the yuan-ruble was often the most traded currency pair on the Moscow Exchange based on daily volume.

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Aluminum giant Rusal was the first company to issue yuan bonds inside Russia last August, and other commodity exporters like oil firm Rosneft followed. Most trade with China and can use yuan raised for everyday business, for example to pay invoices.

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Bistrodengi, a Russian lending platform, started selling yuan bonds last year despite not doing any business in the Chinese currency. The company’s chief finance officer, Yakov Romashkin, said borrowing in yuan was far cheaper than rubles. Its bonds offer a coupon rate of 8% instead of the 19% that it likely would have had to pay to borrow in rubles.

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The Russian broker that arranged Bistrodengi’s previous ruble bond offerings ran the deal, and buyers were predominantly individual Russian investors, he said. It swapped the yuan back into rubles.

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Mr. Romashkin said there were technological hiccups. Some brokers weren’t fully set up to sell yuan securities, with some displaying incorrect information about Bistrodengi’s bonds, he said. Some didn’t allow investors to buy bonds using their app, instead requiring trades be done over the phone.

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“Gradually we are solving these problems and subsequent placements have had fewer technical problems compared to when we started the process late last year,” he said.

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Households are warming up to the yuan. Nearly 50 financial institutions offer yuan savings accounts, according to comparison site Banki.ru. The first yuan-denominated exchange-traded fund launched on the Moscow Exchange in January.

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Households held almost $6 billion worth of yuan deposited at the end of last year at Russian banks, according to data from the central bank. That is up from zero at the start of the year, and is now more than a 10th of the $53 billion in foreign currency that households held.

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Russian financial blogger and consultant Olga Gogaladze, who has more than 2 million Instagram followers, in October published a guide to the yuan after being inundated with questions about the currency last year. Russians have long bought dollars and euros to protect themselves against the ruble’s volatility. That changed last year as banks instituted fees on those accounts and many worried about the impact of Western sanctions.

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“Conversations were going around about the end of the dollar,” Ms. Gogaladze said. “The yuan was presented as an available alternative.”

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She has a yuan bank account at Russian digital bank Tinkoff but still prefers to hold most of her money in rubles, euros and dollars. She said yuan accounts typically have lower interest rates than those for rubles, but they still can be a good option for people worried about a devaluation of the ruble.

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“When people see the ruble is getting weaker and weaker, they don’t care about the yield, they just want to save their money,” she said.

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