RMB Internationalization and its implications for
China-Russia Economic Cooperation
Denis V. Suslov
Ph.D. (Econ.), Senior Research Fellow
Head, Department of Economic Cooperation in Asia Pacific
Economic Research Institute, Khabarovsk, Russia
153, Tikhookeanskaya St. Khabarovsk, 680042 RUSSIA
Tel.: +7(4212) 62 67 16
Fax: +7(4212) 22 59 16
E-mail: [email protected]
ABSTRACT
This article highlights RMB liberalization processes and the rising demand for the use of
national currencies in Russia-China bilateral trade and investment which indicates a great
potential of the RMB/RUB market.
It’s been several years since Russia and China started using the ruble and yuan in bilateral
trade in their boarder areas and recently in all regions. Further steps are taken to build a
settlement infrastructure that allows payments in domestic currencies. At the end of 2010 the
ruble began to trade against the yuan in China Foreign Exchange Trade System, and Russian
MICEX-RTS Group launched trading of the yuan against the ruble.
The development of yuan/ruble trade and settlements in national currencies meets the
goals of Russia and China, since it provides the base for further elimination the rigid dollar peg
and move to real diversification of foreign exchange. The growth of settlements in national
currencies and the achievement of high liquidity of the yuan/ruble exchange market are only
possible with the joint efforts by Russian and Chinese authorities, participating banks and welldoing integrated financial infrastructure of both countries. The forecasts about trade turnover
(100 billion USD) between Russia and China by 2015 and the last five years average growth rate
of settlements in yuan and rubles suggest high demand for yuan/ruble currency conversion from
the participants of foreign trade in the future.
Keywords: Chinese yuan (CNY, RMB), Russian ruble (RUB), US Dollar (USD), FXmarket, MICEX-RTS 1, liberalization, trade, investment, Russia, China (PRC)
1
OJSC "Moscow Exchange MICEX-RTS" is the largest Russian exchange both in terms of turnover and the
extensive client base
Introduction
One of the notable events in the financial life of the East Asia development was RMB
internationalization by liberalization of exchange regulations in several Chinese border provinces.
In our view, this process is of major importance for the Russia as a whole and Eastern part of it
(Russian Far East and Zabaikalie) 2.
Strengthening Russia-China economic relations in late 20th century was largely
constrained by the special nature of the functioning of these countries’ national currencies. The
yuan was not even a partially convertible currency, as it was not allowed to move across the
border (either in import or in export) either by Chinese citizens or non-residents. Similar
difficulties (although in a softer version) were linked to the use of the Russian ruble. Trade
operations were performed in the US dollar equivalent, which led to additional costs for
conversion, as well as to emergence of risks connected with the change in the rate of this
currency-intermediary.
The increased intensity of trade in the border areas required the use of more convenient
financial instruments. On August 22, 2002 in Shanghai was signed an agreement between the
Central Bank of Russia and the People’s Bank of China “On interbank settlements in trade in
border areas”. It contained an agreement to conduct an experiment on direct settlements in
rubles and yuans. The right for such settlements was received by banks and bank branches
located in Blagoveshchensk (Russia) and Heihe (China).
The main idea of an agreement was to shift settlements in border trade, which in most
cases were carried out by transferring cash across the border by individuals to the banking
channel. At the same time it would lead to an extension of the scope of convertibility of the ruble
and yuan in current foreign exchange transactions. The government allowed Chinese banks and
firms to accept payments from Russian partners in their national currency (and not only in US
dollars and yuans, as before). In fact, it was the first precedent for the legal use of the Russian
currency in operations abroad.
In 2005, the experiment was expanded. Carrying out currency exchange operations with
yuan cash, as well as conducting non cash transactions in yuan was allowed to all banks located
in the six territories of Russia: Primorsky and Khabarovsky Kray, Amurskaya oblast,
Chitinskaya oblast, Evreiskaya oblast, and the Republic of Altai. For the Chinese side the similar
opportunity for operations with the ruble was given to the provinces of Heilongjiang, Jilin and
Inner Mongolia, as well as the Xinjiang Uygur Autonomous Region.
The effects obtained during the experiment can be described as follows:
1) Creating more favorable conditions to carry out foreign trade operations. First of all, it
facilitated repatriation of the proceeds derived from trade by Chinese businessmen in Russia and
Russian ones in China.
2) Additional incentives were created to attract customers by the banks included in the
zone of the experiment. On the one hand, those are legal entities that are interested in making
payments for foreign trade contracts in national currencies. On the other, those are individuals
who use bank transfers of funds abroad.
3) An expansion of bank resource potential was achieved by the use of interbank lending
in the currency of the opened correspondent account.
4) There was a decrease in the volume of shadow currency transactions, and hence a
more accurate assessment was made of the ongoing foreign economic processes, and their more
sound regulation was attained.
In late 2010 the experiment was expanded within whole China and Russia. China and
Russia expanded local currency settlements for bilateral trade. The yuan started trading against
Russian ruble on the Chinese interbank market and in Russian Moscow Interbank Currency
2
Russian eastern regions consist of nine Far East territories (Republic of Sakha (Yakutia), Primorsky Kray,
Khabarovsky Kray, Amurskaya oblast, Kamchatsky kray, Magadanskaya oblast, Sakhalinskaya oblast, Chukotka
and Evreiskaya oblast) and two Zabaikalie’s territories (Chitinskaya oblast and Zabaikalskyi Kray).
Exchange (MICEX). The ruble was the seventh currency traded on China's Foreign Exchange
Trade System after the introduction of the US and Hong Kong dollars, the euro, yen, British
pound and Malaysian ringgit. As China's energy needs would continue to grow quickly and with
Russia's increasing appetite for manufactured goods, skipping the US dollar would benefit the
burgeoning trade between the two countries. Without exchange rate loss, both countries will see
large reductions in trade costs, which will help China and Russia get trade on new track.
RMB and Ruble in China-Russia Economic Cooperation
At present, China ranks first among foreign trade partners of Russia. In 2012, the share of
China's foreign trade rose to 10.6 per cent and trade turnover grew by 11.2 per cent to 88.16
billion USD. The target level on the Russia-China trade turnover is 100 billion USD in 2015 and
in 200 bln USD in 2020. 3
Now the Chinese yuan and the Russian ruble are used for settlements and payments
between Russia and China in the framework of the agreement between the Bank of Russia and
the People's Bank of China on the interbank settlements in trade along the border, signed in
August 2002 and the agreement on the January 1, 2005 about settlements in trade and tourism
services which can be implemented along with the free convertible currencies, in rubles and yuan.
Since the beginning of this agreement the number of accounts in national currencies that
were opened by Russian and Chinese banks in the border areas, and the pace of it grew steadily.
A reduction was observed only in 2009 with the overall decline in production and decline of
financial activity (Fig. 1). In 2010, the settlement between China and Russia in national
currencies was 33.24 billion rubles and 330 million yuan. Moreover, settlements in RMB grow
rapidly: in January–August, 2011 they amounted to 862 million yuan.
1200
1000
800
600
400
200
0
2003
2004
2005
2006
2007
2008
2009
2010
Figure 1. Total volume of settlements in yuan and ruble via correspondent accounts in
Chinese and Russian banks in cross-border trade, mln USD equivalent
In recent years, the share of the Chinese yuan in the settlements in the border areas has
grown considerably, but still inferior to the Russian ruble, which accounts for about 90 per cent.
However, such change (increase ruble settlements by 60 per cent in 2010 and yuan settlements more than 6 times) indicates a significant increase in interest in the use of national currencies in
bilateral payments.
Despite strong growth, the volume of payments in national currencies is still very small
compared with the total volume of foreign trade. The proportion of payments in national
currencies is 1.5-2 per cent of foreign trade turnover between China and Russia and has a great
potential for development. China continued liberalization of exchange regulation, removing all
regional restrictions in the use of yuan in foreign trade operations of their companies.
Government authorities of the PRC (People's Bank of China, the Ministry of Finance,
General Administration of Customs, State Administration of Taxation, China Banking
Supervision Commission) in late August 2011 issued a joint notice, pursuant to which the use of
the yuan in cross-border settlements became possible in all provinces and autonomous regions.
3
According to statements by the heads of state during President Hu's visit to Russia in June 2011
Since the Russian legislation does not contain any restrictions on the use of the ruble and yuan in
the settlements, now with full confidence we can say that the settlements in national currencies
for trade transactions went beyond border areas and can be used by banks and businesses all over
Russia and China.
Current status of settlements in national currencies in inter-regional and cross-border
trade between Russia and China is determined by the fact that they operate in the new
environment by the agreements between the Central Bank of Russia and the People's Bank of
China on the settlement and payment of June 23, 2011. As known this agreement was lifted
almost all restrictions for national currencies in trade and economic relations between our
countries, extended their use to pay for services and the implementation of inter-bank transfers
by citizens. In addition to the agreement an important position to strengthen cooperation in order
to further improve the mechanisms of exchange trading of the ruble and the yuan as an important
element of the practical implementation of the mechanism of settlements in national currencies is
reordered.
Since the adoption of the agreement took place more than a year, so it is important to
analyze the results of settlements in national currencies in inter-regional and cross-border trade
during this period. Analysis of data for the common list of variables for the period from June 2011
to June 2012, presented by the Central Bank of Russia, can give us the following assessment of
the state of affairs in the use of national currencies.
As of July 1, 2012 it was opened 113 correspondent accounts in the national and in freely
convertible currencies by the banks from border areas. Of these, most (69 accounts) are
correspondent accounts in rubles and yuan. For a year after the adoption of the Agreement the
number was reduced to 11 units, which is the result of the bank's work to optimize settlement
schemes and correspondent relations (Table 1).
Table 1. The number of open correspondent accounts in the Russian border areas
By the date and types of account
July 1, 2012
July 1, 2011
Total
LORO NOSTRO
Total
LORO
NOSTRO
In national currencies
69
32
37
80
36
44
In ruble
32
29
3
36
33
3
In yuan
37
3
34
44
3
41
Total
113
47
66
126
50
76
Source: compiled from the data of Russian Central Bank
At the same time with the beginning of the agreement the activity of Russian banks out
the border areas to establish correspondent relationships with Chinese banks is increasing. So on
July 1, 2012 the number of new correspondent "NOSTRO" accounts in yuan on which their
settlements are carried out with China increased by 22 units.
Table 2. The total turnover of money funds in correspondent accounts in national
currencies for the period before and after the adoption of the Agreement (in the evaluation
of USD millions).
Accounts
NOSTRO
LORO
2nd half 2010- 1st half 2011
Total for Russia
382.4
3,009.2
In border regions
132.8
1,854.1
Source: compiled from data of Russian Central Bank
2nd half 2011- 1st half 2012
Total for Russia
3,577.9
In border regions
204.0
3,547.1
989.1
These data indicate that the agreement eliminated barriers for using the national
currencies in settlements and payments and in general have increased the turnover of
correspondent accounts by 2.1 times. The greatest effect was obtained by the increase in the
volume of payments in RMB almost 9.4 times. Thus, at present time the parity was reached in
the using of national currencies in our countries, which for many years raised concerns from
Chinese partners. Another question is what are the potential future opportunities of trade and
investment in national currencies using direct correspondent relations between Russian and
Chinese banks?
It should be noted that if the share of ruble transactions is up to 60 per cent of the total
turnover on the accounts in all currencies, the share of the Chinese yuan has only 6-7 per cent.
Therefore the substitution of foreign currencies on national in foreign trade, in our opinion, is
more dependent on the Chinese exporters’ policy and their interest in the use of national
currencies in the payments.
We should mentioned that the decline in turnover on the "LORO" accounts in banks in
the border areas was predictable, since about half of all payments in foreign trade transactions
were carried out in favor of clients of other banks out the border area, including customers of
banks registered in Moscow.
In 1st half of 2012, as a year earlier, the maximum share of payments in rubles at the fell
on the banks of Primorsky Kray "LORO" accounts - 50.7 per cent (52.4 per cent last year).
However, the total turnover on correspondent accounts in the region decreased by 43.5 per cent.
The total turnover of transactions in rubles in banks of the Amurskaya oblast declined from
249.4 million to 2.2 million USD, while they accounted for only 0.7 per cent. The share of ruble
bank operations of Khabarovsky Kray has increased to 45.8 per cent compared to 2.1 per cent a
year earlier, with increasing turnover by 13 times.
It is still not overcome the lack of which is largely distorts the very essence of the matter,
when the ruble funds credited to the accounts of Chinese credit organizations in the Russian
banks, almost fully converted into US dollars. Thus, during the first 6 months of 2012 in the
Amurskaya oblast, Primorsky kray and Zabaikalskyi Kray converted from 96 to 100 per cent of
the ruble funds.
The maximum amount of payments in H1 2012 in the Chinese national currency on
"NOSTRO" accounts fell on the banks of the Amurskaya oblast - more than 51 per cent (59 per
cent last year). The share of banks in the Khabarovsky kray was 25.5 per cent (15.6 per cent last
year), Primorsky kray -18.1 per cent (24.6 per cent), Zabaikalskyi Kray - 4.7 per cent (0.3 per
cent).
After the signing of the Agreement between the Central Bank of Russia and the People's
Bank of China on the settlement and payment of the June 23, 2011 transaction with the Chinese
yuan in the Russian Federation has increased significantly, and this trend continued in the 2012
year.
So according to bank reports on foreign exchange transactions carried out on the bank
accounts, deposit accounts (deposits) at banks in the 1st half of 2012 in Russia, the total turnover
on the current accounts of residents in RMB for all types of payments (including conversion,
border transactions, loans, and other operations) increased by more than 5 times compared to the
same period in 2011 and amounted to 6,024.0 RMB mln against 1,150.6 RMB mln a year earlier.
In connection with the organization and conduct of December 2010 on the Moscow
Interbank Currency Exchange official trading currency pair ruble-yuan we can see the trend to
an increasing in the volume of foreign exchange transactions in the Chinese currency. So trading
in RMB rose by 3.8 times - from 377.5 million yuan in the January-June 2011 to 1,447.0 million
in January-June 2012.
In H1 2012 in the border areas of the Russian Federation and China individuals still
interested in cash yuan. The total turnover of foreign exchange transactions with cash yuan in six
border areas in January-June 2012 increased by 13 per cent compared to the same period in 2011
to 57.6 million US dollars (51.0 million USD a year earlier).
It was purchased the yuan funds amounted to 29.3 million dollars equivalent, which is
9.1 per cent higher than last year. And the volume of sales to individuals increased by 17 per
cent or to the amount of 28.3 million dollars. Thus, the amount of cash yuan purchased by the
authorized banks from individuals rose by 3.5 per cent or 1.0 million USD.
In general, evaluating the results of the past year in the area of settlements in national
currencies in inter-regional and cross-border trade between China and Russia, it should be noted
some progress in this area. Despite the projected decline occurred in the settlement of crossborder trade, the overall increase in the use of national currencies in bilateral relations was quite
high. The collaboration in terms of trade finance and signing the loan agreements for new project
between the banks of two countries is on run.
The strengthen cooperation promoted by the increased presence of Russian and Chinese
financial institutions in the markets of the two countries. In our view for urgent issues of
promotion of national currencies using in the foreign economic relations in inter-regional and
cross-border trade between China and Russia should be mentioned following points.
First, this is the expansion of the use of national currencies in payment for supplies of
energy and other commodity exports, as were proposals from the Russian side at the thirteenth
meeting of the Sub-Commission on cooperation in the financial sector of the Russian-Chinese
commission for the preparation of regular meetings of the heads of government in June 2012.
Second, the development of our countries’ central banks of recommendations for credit
institutions for service of money transfer on behalf of individuals without opening the bank
accounts thus reduces the cross-border trafficking of cash from its transfer to a more transparent
non-cash form.
Third, to take into account of the features of inter-regional and cross-border cooperation
in the financial sector and to prepare proposals for consideration by the Sub-Commission on the
above is useful, in our view, to study the feasibility organization in the Russian-Chinese
Coordinating Council a working group of representatives of governments, regional offices
central banks, credit institutions and interested financial institutions.
The Growing Demand for the Yuan Use for Investment Purposes
China has made great progress in the liberalization and promotion of its currency in the
global market. Hong Kong became the site over RMB internationalization by easing restrictions
on transactions with yuan in 2010. In 2011, the volume of deposits in yuan in Hong Kong banks
reached 600 billion (95 billion dollars), compared with 100 billion year earlier. S&P Experts
estimate the amount of offshore deposits could soon reach 1 trillion yuan, which will provide a
natural basis for the development of the bond market and the promotion of various currency
instruments.
Since 2007 Chinese companies were authorized to issue RMB bonds in Hong Kong, and
three years ago this opportunity got foreign companies ('dim sum' bonds). Volume of issued
bonds outside China in 2010 amounted to 42.6 billion yuan (including the "VTB Capital" sells 1
billion) in first half of 2011 - 69.4 billion yuan. Despite high growth rates, the market for ‘dim
sum’ bonds still less than 1% of the total outstanding RMB bonds in mainland China, but has
great potential.
Since 2010, the offshore RMB market in Hong Kong is booming, from 2011 - in
Singapore. The growth of yuan trading in Hong Kong (CNH) has overtaken all expectations:
starting from the ground up it reached 3 billion USD a day turnover in first year. Offshore yuan
trading volumes equaled the previously dominant non-deliverable forwards (NDF) market. In
May 2011 for the first time the volume of CNH trade surpassed the average daily trading volume
in the NDF market in Asia. The HSBC, one of the largest CNH market makers, expects that new
currency soon surpass and NDF trading market in Europe. CNH currency options market also
growing very fast: the average daily volume is approximately 200-300 million USD. 4
Liberalization and increased liquidity of the yuan currency market attracts more attention
for use it as international settlements currency. In the first half of 2011 the volume of
international payments in RMB reached 1 trillion yuan (about 150 billion dollars), more than 13
times higher that the amount in the same period of the previous year. 5
The Russian interbank market is on the rise with operations in yuan. For 2011, the
volume of transactions of Russian banks with the Chinese currency has exceeded 1 billion USD
equivalents. Dynamics was growing: from 78 million USD per month in first quarter to 129
million USD in the forth quarter of 2011. 6
Russian banks are making deals with the yuan as using interbank market, as well as
directly with clients. The customer segment share in December 2011 was 3.3 per cent of all spot
transactions of Russian banks. In the interbank market the yuan transactions is not held only by
spot operations (average volume of that operations in 2011 was 62 per cent), but also swap
transactions (18 per cent) and futures operation (20 per cent).
RMB/RUB Exchange Market Development
Russia and China make joint efforts to create settlement infrastructure in national
currencies. RMB/RUB currency pair exchange trade was started in Shanghai in 2010 via China
Foreign Exchange Trade System (CFETS). In less a year from November, 2010 till October,
2011 total exchange trade volume for RMB/RUB pair exceeded 3 RMB bln and daily volume
amounted to 25 RMB mln. Monthly RMB/RUB trade turnover (in mln USD) at CFETS and
MICEX was significantly grown from 2012 till the beginning of 2014 (Fig. 2).
800
700
600
500
400
300
200
100
M
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1
Ju 2
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g
Se 13
pt
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D 13
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Fe 14
b
14
0
CFETS
MICEX
Figure 2. Monthly RMB/RUB trade turnover at CFETS and MICEX in mln USD
Source: MICEX data
From 15 December, 2010 RMB/RUB currency pair exchange trade was started in Russia
at Moscow Interbank Currency Exchange (MICEX). 7 Running RMB/RUB exchange trading was
important not only for the development of bilateral trade and economic relations, but also for the
4
Offshore renminbi celebrates first anniversary. Euromoney Magazine, August 2011
China Daily, August 23, 2011.
6
The data on the BIS methodology for the conversion operations of Russian banks include not only a pair of
yuan/ruble, but the yuan/dollar deals, which accounts for most of the operations.
7
MICEX-RTS Group - an integrated stock exchange, under which the FOREX, stock and futures markets are
operated. The group consists of "MICEX-RTS", "MICEX", "National Clearing Centre "(NCC), "National
Settlement Depository ", etc.
5
promotion of the ruble and yuan in international settlements and the creation the International
Financial Centre in Russia.
Despite the fact that on the MICEX in the first phase was launched just one CNY/RUB
instrument with settlement dare T+0 (TOD) the total turnover from December 2010 to January
2012 amounted to more than 1 billion yuan, the average daily turnover was more than 4 mln
RMB. From autumn of 2011 there was a substantial increase in trade. With further liberalization
of the Chinese currency legislation yuan/ruble pair exchange trade in forth quarter 2011 showed
rapid growth: compared to first quarter trade volume grew by 5.4 times, reaching the 33 million
USD equivalents in December, or 68 per cent of the Russian market transactions in yuan. In the
forth quarter the share of yuan / ruble exchange transactions was 43%. The composition of
exchange turnover by trading pairs at MICEX in 2011 and 2013 shown in Fig. 3.
Figure 3. Composition of exchange turnover by trading pairs at MICEX in per cent
Source: MICEX data
In present time it was considered the direction of further development of yuan/ruble
exchange trade in the Russian market, which are associated with higher time of trading (now only 1 hour, from 10:00 to 11:00 MSK) and the addition of new instruments with settlement
dates of T+1 (TOM), and arrange a swap transactions. As part of the project the yuan/ruble
auction will go to partially pre-deposited funds. As a result of trading, clearing and calculations
of the yuan / ruble will be held in accordance with the general principles on which the MICEXRTS is dealing with the freely convertible currency.
Russian banks have shown great interest in the new foreign exchange segment. In 2013 in
the yuan/ruble transactions were involved more than 100 banks. In general, the volume of
transactions in 2013 with the Chinese yuan has increased by 4.5 times to 37 billion rubles. The
total trading volume for all CNY/RUB exchange instruments currency pair consists of 55 per
cent of spot transactions and 45 per cent of swap transaction. The main market makers of yuan at
MICEX are six banks - Russian subsidiaries of China's largest credit organizations - the Bank of
China (ELOS) and Industrial and Commercial Bank of China (Moscow), VTB, Vostochnyi
Express and others that provides a variety of services to its clients on transactions with the
Chinese currency.
The Opportunities for Banking with Operations in Yuan
China continues to pursue a policy of internationalization of the yuan, expanding the use
of the national currency on the basis of both multilateral and bilateral agreements.
Important legal prerequisite for expanding the use of the ruble and yuan in bilateral
settlements was the signing in November 2010 the Protocol of amending the Agreement between
the Governments of Russia and China on trade and economic relations of 5 March, 1992, the
Protocol has fixed the possibility of using national currencies of the two countries in the
settlements and payments of the Russian-Chinese contracts along with foreign currency. In June
2011 the agreement between the Bank of Russia and the People's Bank of China on payments
and settlements was signed. At that time, the People's Bank of China has adopted a number of
important decisions to promote the use of RMB settlement in the Russian foreign exchange
market:
- in September 2011 it was allowed to open special accounts in China for Russian bidders
of yuan/ruble operations on MICEX-RTS;
- in December 2011 it was signed an agreement on the establishment of correspondent
relations between the Bank "National Clearing Centre" (NCC) and the Shanghai branch of the
Bank of China.
The opening in the Shanghai the Branch of Bank of China the special correspondent
accounts in RMB for NCC significantly improves the NCC position as a central counterparty to
manage liquidity in RMB and settlement in the market. In these circumstances, the MICEX
currency market may be a link between offshore (external, Hong Kong) and onshore (domestic,
continental) yuan markets, and the banks will have additional opportunities for business
development. Russian banks - bidders can open special accounts in Chinese banks to carry out
non-cash exchange operations, to credit the yuan to special accounts in the PRC without the
provision of trade contracts, open deposits. In addition, Russian banks have opportunities to
invest in the Chinese bonds and derivatives market mediated by Chinese banks-agents.
Currently the interbank market bond deals in Shanghai ranked fifth in the world by
volume of securities in circulation. According to a recently developed by the National
Development and Reform Commission (NDRC) program of Shanghai transformation into the
World Financial Center, the Chinese bond market should enter the top three. In addition, the
program aims to ensure that, by 2015, Shanghai will be one of the five largest markets for
financial derivatives. According to the NDRC forecast, the trading volume on the stock
exchanges of Shanghai, excluding foreign currency transactions to reach one quadrillion yuan
(158 trillion USD) in 2015 compared with 386 trillion yuan in 2010.
RMB is not a freely convertible currency - Chinese authorities keep a number of
restrictions on capital transactions. The differences between the onshore and offshore markets of
Chinese currency allow the arbitrage operations. Because of the limited flows between internal
and external market the rate of offshore renminbi (CNH) exchange occasionally deviates from
onshore (CNY) (Fig. 4).
Figure 4. The exchange rate at onshore and offshore RMB markets
Source: Thomson Reuters
Excessive level of liquidity in the yuan offshore market due to limited investment
opportunities leads to an underestimation of Hong Kong regular interest rates in yuan relative to
continental market. Availability of accounts in Shanghai in cooperation with Chinese and
Russian banks - partners of the project will provide attractive pricing terms in transactions with
the yuan to banks-participants of yuan/ruble exchange trade and their clients.
The expansion of bank customers’ opportunities with transferring payments on foreign
trade contracts in the national currency has great importance. Shifting settlements in yuan
reduces the cost of conversion for trading partners and increase the number of Chinese
businesses that are ready to work with Russian companies on foreign trade contracts. In addition,
Russian exporters have diversified currency structure of revenue and increase cash flow in the
Chinese currency. Shifting of trade contracts in yuan reduces currency risks for Chinese
exporters, which can lower prices for Chinese products to Russian importers.
Development of settlements under foreign trade contracts in yuan and rubles should help
eliminate some internal technical problems, for example, the VAT refund for Chinese exporters.
After the recent clarification of the Chinese authorities on this matter can be expected simplify
and enhance interest payments in those currencies.
The Development of Investment Component in Bilateral Cooperation
Foreign exchange transactions are not limited to foreign trade exchange transactions. To
increase the liquidity is necessary to develop the investment component. The turnover of the
MICEX currency market is 7-8 times greater than Russia's foreign trade. In developed countries
this proportion is even higher. Increase in the use of national currencies of Russia and China in
foreign trade, investment and the total FOREX market required to redress the imbalances and to
reduce dependence on the dollar.
China's share of world GDP in 2010 was 13.6 per cent and 9.3 per cent in total world
exports, but Russia’s share of global GDP – 3 per cent and in export - 2.4 per cent. The share of
transactions with the Chinese yuan in total world foreign exchange market in 2010 was only 0.1
per cent, the share of the Russian ruble - 0.9 per cent. For comparison, with the share of the U.S.
in world GDP is about 20 per cent and comparable to China's share in the exports of 9.8 per cent,
the dollar's share in the global foreign exchange market is about 85 per cent. 8 Activation of
national currencies of Russia and China in trading will eliminate these disparities and improve
the efficiency of international trade and financial transactions.
Despite the huge growth potential of the yuan operations on the Russian foreign exchange
market, it is necessary to consider a steady structure, which in 2011 accounted for 65 per cent of
the pair dollar/ruble, EUR/USD pair - 24 per cent, euro/ruble pair - 5 per cent and 6 per cent for
all other currency pairs. According to the Russian Central Bank, the operation of domestic credit
institutions with the Chinese yuan in 2011 amounted to 2.8 million USD per day, or 0.005% of
the average daily volume of interbank market (54 billion dollars). Liberalization of Russian bank
operations with the Chinese yuan have to boost trade turnovers. Chinese authorities say the
settlements in RMB in the global market for the year increased by 13 times, which allows us to
predict high growth in the Russian market.
The Chinese authorities are pushing the national currency on the international stage. In
2009-2011 the People's Bank of China signed an agreement on mutual currency swap
arrangements with the central banks of 10 foreign countries for more than 1 trillion yuan, or
about 160 billion USD. Concluded the agreements the central banks may sell Chinese currency
to their companies that want to buy Chinese goods and pay the yuan for them. Among the
countries that have signed such agreements, not only China's closest partners in South-East Asia
- Hong Kong, South Korea, Indonesia, Malaysia, Singapore, but Russia's neighbors in the CIS
countries - Belarus and Uzbekistan.
Russian authorities should also promote the ruble as the currency of international
settlements. The ruble is used in settlements with CIS countries, and now the task is to expand
the scope of its implementation in trade with other partners especially BRICs’ countries.
8
The volume of transactions with all currencies was taken as 200%.
The development of yuan/ruble trade and settlements in national currencies meets the
goals of Russia and China, since it provides the base to escape from the rigid dollar peg and
move to real diversification of foreign exchange. The growth of settlements in national
currencies and the achievement of high liquidity of the yuan/ruble exchange market are only
possible with the joint efforts by Russian and Chinese authorities, participating banks and welldoing integrated financial infrastructure of both countries.
Conclusion
One of the main issues in China-Russia financial cooperation is increasing competition
with yuan/dollar operations. Under globalization conditions the exchange market for yuan/ruble
has to compete with a much more liquid segment of the yuan/dollar market spinning up by the
world's largest banks.
In 2010 CNH trading platform EBS was launched by the largest electronic broker ICAP
with the division in Hong Kong. According to the ICAP in June 2011, the trading volume
increased by 50% with record 92 million USD on 17 June. The size of transactions on a regular
basis grew from 5 million to 10 million USD, and individual transactions exceeded 20 million.
In spring 2011 RBC Capital Markets launched trading platform for spot, swaps and futures
transactions for CNH. .
Settlements in yuan and yuan/dollar operations actively promoted by the world's largest
banks (Deutsche Bank, Citigroup, JP Morgan, HSBC, Standard Chartered, etc.) with reference to
the offshore yuan market in Hong Kong. Thus, Deutsche Bank, which began CNH trading two
years ago, said that in May 2011, its daily volume for the first time exceeded 1 billion USD.
According to Deutsche Bank information the 20-30% of the global offshore yuan is trading in its
system.
World's largest banks appreciate the potential demand of its customers to trade in yuan.
According to a survey conducted by HSBC in the past year, about 45 per cent of Chinese bank
customers are planning to use the yuan for trade settlements in 2012, and 33 per cent said that
they are going to consider the proposed options. 9
Also the yuan/dollar transaction is dominated in the operations of Russian banks with the
yuan. In 2011 they had two-thirds share, the yuan/ruble has one-third share of the total volume.
To activate this market requires a set of marketing activities to promote the ruble as the currency
of international settlement and formation of its direct quotations to major trading partners’
currencies without the mediation of the dollar.
Comparison of trading volumes on this currency pair with the assessment of the total
settlement in yuan and rubles on foreign trade contracts between Russia and China shows that in
2011 the foreign exchange market through the MICEX-RTS held about 8 per cent of total
payments in these currencies. However, the settlements in two currencies accounted for only 2
per cent of the foreign trade turnover between Russia and China.
The practice shows that rapid change for existing proportions is impossible in modern
world. According to experts, 80-90 per cent of trade is carried out in US dollars, 50-60 per cent
of trade with the EU - in euros, 32 per cent of trade in Japan - in yen. For developing countries
and limited convertibility currency contracts in local currencies usually is not exceeding more
than 1-3 per cent. Past two years of RMB liberalization according to Chinese data the estimated
share of RMB in settlements increased from 2 to 7-8 per cent.
According to HSBC experts in period of three-five years over 50 per cent of Chinese
foreign trade mainly with developing countries will be provided via yuan transaction. Thus the
volume of foreign trade settlements in yuan reaches 2 trillion USD by 2015. 10 The forecasts
9
Will China unhitch from dollar, internationalise renminbi? Euromoney, July 2011.
Viktor Andreev. Yuan's Internationalization: Interim Results and Prospects, Money and Credit, #5, 2011. Pp.3742 (in Russian)
10
about trade turnover (100 billion USD) between Russia and China by 2015 and the last five years
average growth rate of settlements in yuan and rubles suggest high demand for yuan/ruble
currency conversion from the participants of foreign trade in the future.
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