HONG KONG: The yuan surpassed the US dollar for the first time this week to become the most traded foreign currency on the Moscow exchange as tensions with the West push the Russian economy closer to China.
A total of 64,900 yuan-rouble transactions were completed on Monday, with the volume of trading reaching 70.3 billion roubles (US$1.17 billion), data from the Moscow Exchange Group showed.
In comparison, spot trading of the US dollar-rouble pair totalled 68.2 billion roubles over 29,500 transactions.
Strong yuan-rouble trading continued on Tuesday, though at a slightly lower level.
Russia has been forced to settle more transactions in yuan after being hit with Western financial sanctions for invading Ukraine.
Global payment systems Visa and Mastercard have suspended operations in Russia since March, and a number of Russian banks have been expelled from the Swift financial messaging system that enables cross-border money transfers.
Russia became the third largest market for offshore yuan transactions in August, accounting for 4.27% of total yuan payments, behind Hong Kong and the United Kingdom, according to Swift data.
In May, Russia was ranked No 12 in the world, but did not feature in the top 15 before that.
"This was an inevitable process since Russia was pushed to 'de-dollarize' its economy under the pressure of sanctions," said Temur Umarov, an expert on China and Central Asia from the Carnegie Endowment for International Peace.
Russian traders and businesses were looking to diversify their portfolios, Umarov said.
"Before the war in Ukraine, interest grew dramatically towards the euro, now this alternative does not seem feasible," he said.
However, he said it did not necessarily mean the yuan is becoming more popular, rather it reflected the "deadlock" Russia had found itself in.
Last month, Russia's Gazprom announced settlements for its gas supplies to China would be settled half in roubles and yuan. Analysts said it was an attempt by Beijing and Moscow to insulate themselves from Western pressure and US dollar hegemony.
Growing use of the yuan will deepen Russia's economic reliance on China as bilateral trade increases, Umarov said.
"Russia will have to go to China and buy more goods and services there if it doesn't want all of this money to be frozen," he said, adding more yuan transactions in Russia were likely.
The Swift ban on Russian financial institutions is also likely to accelerate expansion of Beijing's own cross-border payment and settlement system, which has gained more prominence amid US threats to decouple its economy from China's in 2019.
The Cross-Border Interbank Payment System, or CIPS, was launched in October 2015 to provide an independent international yuan payment and clearing system and boost international use of China's currency.
However, the yuan still remains far behind the dollar and other major currencies like the euro when it comes to global payments.