Under increasing secondary sanctions pressure from the United States, Russia has effectively abandoned its attempts to supplant the dollar with the yuan. This situation underscores the robust position of the dollar and highlights the significant challenges faced by other nations seeking alternative global currencies.
Recent reports from Bloomberg indicate that, according to the latest data from the Central Bank of Russia, the share of trade settled in yuan has dropped to 22% in Russia’s exports this year. This figure marks a significant decline—halving since its peak in mid-2024 when the U.S. began expanding the scope of its secondary sanctions. Currently, 69% of Russia’s exports to Asia are settled in rubles, revealing a shift back to the national currency despite rising trade volumes with China.
Since the onset of the war in Ukraine, Russia has faced severe sanctions from Europe and the U.S., resulting in its exclusion from the SWIFT financial system. Consequently, it was compelled to redirect its trade relations towards China. This pivot rapidly accelerated the use of the yuan, with China becoming Russia’s largest trading partner, now accounting for over one-third of Russia’s total foreign trade.
Estimates from Bloomberg Economics suggest that since 2021, approximately 30% of the growth in China’s trade settled in yuan has originated from its dealings with Russia. As of mid-2024, the volume of Russian exports priced in yuan has consistently surpassed the direct trade amounts exported to China. This shift suggests that an increasing number of buyers from other regions are also opting to use yuan for transactions with Russia.
However, despite this rapid growth in trade dealings, the reversal in fortunes came quickly.
In June 2024, the U.S. significantly expanded the applicability of secondary sanctions on financial institutions and businesses conducting transactions with Russia. Although the yuan was viewed as a potential alternative, China remains heavily reliant on the dollar-based financial system. As a result, faced with the possibility of secondary sanctions from the U.S., Chinese banks took a step back.
This withdrawal left Russian companies in disarray, facing frozen payments, delayed transactions, and returned remittances. Chinese banks also completely halted business dealings with Russian counterparts. Eventually, the Central Bank of Russia had to advise its financial institutions to restrict yuan-denominated credit operations.
Despite efforts by companies facilitating trade between Russia and China to maintain some channels, none of the existing pathways can guarantee smooth payment completions.
Alexander Vedyakhin, the First Deputy Chairman of Sberbank, Russia’s largest bank, noted that even after both Russia and China officially shifted toward trade settlements in their respective currencies, the payment process remained fraught with obstacles.
As Russia has begun to reduce its reliance on the yuan in trade, the growth momentum of the yuan in global payments has stagnated. According to Bloomberg’s calculations, by the end of last year, the usage of yuan in trade with third countries transitioned to negative values.
Data from SWIFT shows that the yuan’s share of global payments has reverted to pre-conflict levels, dropping to fifth place and falling behind the Japanese yen.
In contrast, Chinese officials argue that transactions through the Cross-Border Interbank Payment System (CIPS) have seen significant growth. However, Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, has analyzed the dynamics of global yuan usage. He emphasized that the increase in CIPS transaction volumes does not suffice to explain the decline in the yuan’s share within the SWIFT system.
He stated in an email to Bloomberg: “The impetus for yuan internationalization driven by sanctions on Russia has now weakened.”
Thus, Russia’s experience has become an unprecedented experiment, ultimately revealing the limitations that President Xi Jinping faces in transforming the yuan into a “strong currency” for international trade. The outcome indicates that even though China currently stands as the world’s second-largest economy, the U.S. retains the ability to push its own political agenda, further underscoring the dollar’s dominant position in the global financial landscape.