By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News. August 7, 2024. Article no 1146.
In August, the Russian Ministry of Finance said that it will buy yuans and gold every day for 1.12 billion rubles (12 millions EUR), or 24.7 billion rubles in total (266 millions EUR). A month earlier the volume of purchases was almost 5 times more – 5.4 billion rubles (123.8 billion rubles in total).
The Bank of Russia, which acts as an agent for the Ministry of Finance’s operations not only under the budget rule, but also for mirroring expenditures from the National Welfare Fund in the Russian domestic market, sells a total of 8.4 billion rubles (84 millions EUR) worth of foreign currency every day. Thus, taking into account the adjustments of the Ministry of Finance, net daily sales of yuan from August 7 to September 5 will amount to 7.3 billion rubles (73 millions euros), which is 2.5 times more than a month earlier.
Net sales from the Russian Central Bank, which will amount to 7.3 billion rubles per day, are almost two and a half times higher than in July (3 billion rubles per day), but less than in June 2024, when the Central Bank sold foreign currency for 8.1 billion rubles per day daily.
Will this strengthen the ruble?
Selling yuans and gold for rubles will hardly support the value of ruble in the market. Gold is a hard asset that in the contrary, if owned by the Bank of Russia, supports the value of ruble.
However, after the imposition of US sanctions on the Moscow Exchange and the National Clearing Center (NCC, which is part of its circuit, provides settlements for currency transactions), the volume of trading in the yuan on the site decreased significantly. If in June the average daily trading volume in the yuan/ruble pair with settlements “tomorrow” exceeded 141 billion rubles (1.3 billion EUR) then in July (from the 1st to the 24th, from the last week of July, the platform suspended the publication of currency trading statistics) decreased to 77 billion rubles, follows from the statistics of the Moscow Exchange. That is, with the previous volumes of transactions, the Central Bank’s daily share in yuan trading was slightly more than 5%, and after the reduction in exchange volumes of currency trading, it was already almost 10%.
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An increase in net sales of foreign currency in August will additionally support the ruble, which continues to trade at fairly strong levels due to the complication of payments for imports, a decrease in capital outflow and the restoration of confidence in the ruble by the population (judging by the latest survey).
Until the end of the third quarter, the ruble can be in the range of 85-90 per dollar, with a possible shift to 90+ towards the end of the year under the influence of a weaker trade balance.
At the same time, a number of factors remain that can significantly change the situation. These are geopolitics, new sanctions and uncertainty about the fate of the yuan on the Moscow Exchange after the deadline for curtailing operations under the sanctions imposed in June was postponed from August to October.
The operations of the Russian Central Bank have become more significant for exchange trading, but no more significant for the formation of the exchange rate as a whole.
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After the easing of the requirements for the repatriation of proceeds by export currency, part of the funds remains in the foreign circuit, but it also affects the exchange rate.
The demand and supply of currency, including the yuan, which is not even on the stock exchange and not in the Russian perimeter, still affects the formation of the exchange rate, so we cannot rush to conclude that the operations of the Central Bank are more significant for the exchange rate.
As of 14:00 Moscow time, the yuan on the Moscow Exchange cost 11.8 rubles. At the opening of trading on August 5, before the announcement of plans for foreign exchange transactions by the Ministry of Finance, the yuan exchange rate was 11.7 rubles. On August 7, 18:00 Moscow time, the yuan cost 12.26 rubles.
Russia’s use of the Chinese yuan has surpassed the US dollar in paying for trade transactions. Western sanctions and the boom in Russian gas and oil exports to China have boosted the yuan’s appeal. Payments in Chinese yuan for Russian exports jumped to about a third of the total. Bilateral trade between Russia and China is growing and amounted to $240 billion (dollar equivalents) in 2023. Meanwhile, Russian companies are increasingly borrowing in yuan while Russian households are using the ruble and yuan to save.
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© Copyright 2024 – Eurasia Business News. Article No. 1146.
