China’s yuan replaces US dollar, euro as Russia’s ‘primary’ foreign currency for overseas economic activity

But analysts said it still faces a reality check in multilateral deals even amid an expansion of the Brics group of developing economies at the start of the year.

“Until 2022, there was a significant share of dollars and euros in our reserves – it was due to the fact that foreign trade contracts were largely in dollars and euros,” Nabiullina said in an interview with Russian news agency RIA Novosti published on Tuesday.

“Now, foreign economic activity is very actively switching to the use of other currencies, primarily the yuan.”

According to Nabiullina, the yuan’s share in Russia’s exports has increased from 0.4 per cent two years ago to 34.5 per cent, and with its share in imports rising from 4.3 to 36.4 per cent during the same period.

Sink or swim: China watches on as Russia’s economy battles Western sanctions

Russia’s First Deputy Prime Minister Andrei Belousov also said in November that settlements in roubles and the yuan in bilateral trade had reached 95 per cent.

China and Russia also further cemented ties with 55 deals worth 13.6 billion yuan (US$1.9 billion), including financial services, signed in the northern Chinese city of Shenyang this week.

Nabiullina added that Russia, as the chair of the Brics group of developing economies in 2024, would drive cooperation in using the yuan and other currencies, and also interconnecting settlement systems.

“We are going to come out with a busy agenda,” she added when asked about the priorities and goals for central banks within the bloc this year.

Egypt, Ethiopia, Iran, the United Arab Emirates and Saudi Arabia joined Brazil, Russia, India, China and South Africa as members of the Brics group at the start of 2024.

On Tuesday, foreign ministry spokesperson Wang Wenbin said China would support the efforts and was “willing to play its role”, when addressing a question about Russia’s proposal for a new settlement system with other Brics countries.

“Developing countries are optimising settlement methods to facilitate trade and investment between them and contribute to global financial stability,” said Wang.

For China, the expansion represents new opportunities for use of the yuan, and also acts as a hedge against Washington weaponising the US dollar.

But analysts see hurdles as the yuan progresses from bilateral dealings with Russia to being involved in more multilateral transactions.

“Russia is an exception,” said Jean-Pierre Cabestan, emeritus professor at Hong Kong Baptist University’s Department of Government and International Studies.

“Brics countries have accepted the yuan more, but only countries that need to buy a lot from China will do more yuan transactions. Otherwise, what are they going to do with their mass of the yuan, which is not freely convertible.

“Saudi Arabia can see its oil paid by China in the yuan up to a point, but most of it will continue to be paid in US dollars.”

How expanding China-led economic bloc Brics adds to the yuan’s global clout

Last year, India rejected a proposal from Russian suppliers to pay for crude oil imports in yuan.

“The economic strength of Brics is not even, with China dominating. How much responsibility China is willing to assume and how willing other countries, especially India, are to accept China’s influence, are debatable,” said Luk Yim-fai, an economics professor with the University of Hong Kong at a seminar last year.

He added it could be easier to promote the yuan within countries involved in China’s Belt and Road Initiative.

The yuan’s share of international payments has been on the rise, but it contracted by 0.5 percentage points to 4.14 per cent in December as the fourth most-active currency, according to Swift.