Before the G7 summit, the United States rolled out a new round of financial sanctions aimed at severing technological connections between China and Russia, in an effort to prevent the continued financial support of Russia by China. As a result of the American sanctions, Russia was forced to halt trading in U.S. dollars and euros, leading to a rush by citizens to purchase dollars. Experts believe that the U.S. sanctions may cause friction between China and Russia, triggering potential conflicts.
On June 12, the Central Bank of Russia (CBR) issued a statement announcing the temporary suspension of foreign exchange trading and settlements in U.S. dollars and euros due to restrictive measures imposed by the U.S. on the Moscow Exchange Group.
Russia’s largest securities exchange, the Moscow Exchange (MOEX.MM), suspended trading in U.S. dollars and euros on June 12 as a result of the new round of U.S. sanctions.
The U.S. restrictions on the Moscow Exchange Group led to the suspension of foreign exchange trading and settlement in U.S. dollars and euros. As a result, banks, businesses, and investors will have to resort to over-the-counter trading, with direct transactions between parties, while the Russian central bank will set the official exchange rate based on data from OTC trades.
Many Russians hold part of their savings in dollars or euros and often sell rubles during economic crises. Following the suspension of trading on the Moscow Exchange, individuals and businesses can continue buying and selling dollars and euros through banks, ensuring the safety of funds denominated in dollars.
Due to the American sanctions, Russia’s economic ties with China have been growing tighter, leading Moscow to rely on the Chinese Yuan for international trade. In May, the volume of transactions in Chinese Yuan accounted for 53.6% of the total foreign currency transactions in Russia.
Economic expert Professor Wu Jialong from Taiwan stated on June 15 to Epoch Times that after Russia faced sanctions, they can rely on the Chinese Yuan for trade settlements, but the duration of China’s support for Russia remains uncertain. China itself is also concerned that if it is targeted by Western sanctions, the impact will be far greater than that on Russia.
The impact of the U.S. sanctions on the Russian economy and society has become evident: the ruble exchange rate has plummeted, prompting Russian citizens to rush to buy dollars.
The Moscow Exchange reassured citizens by stating that over the past two years, the role of the U.S. dollar and euro in the Russian market has been diminishing, with the country shifting trade towards the East, settling transactions in rubles, Yuan, and other friendly currencies.
The statement also indicated that the Yuan’s exchange rate against the ruble would become the benchmark for other currencies and a guideline for all market participants.
However, the soothing remarks from the Russian Central Bank have not eased the concerns of Russian citizens. Following news of American sanctions, videos of Russians lining up to purchase dollars went viral on social media.
The Telegram channel Bankrollo reported, “In St. Petersburg, there is a long line at a currency exchange office,” and shared a video of people queuing to buy dollars.
In another post, the Bankrollo channel wrote, “The dollar exchange rates at many banks are soaring. Novik Bank has set a new dollar rate – buying at 50 rubles, selling at 200 rubles.”
Post-Soviet and international political consultant Jason Jay Smart also shared footage on social media of Russian citizens lining up to buy dollars, commenting, “The ruble is collapsing… Long queues at currency exchange offices.”
Belarusian news outlet Ideal Society reported on June 13 that due to the sanctions on the Moscow Exchange and the Russian National Settlement Depository, bilateral fund transfers between Kyrgyzstan and Russia have been disrupted, causing many Kyrgyzstan banks to cease their business cooperation with Russia, including halting ruble transactions. In July 2022, Kyrgyzstan had announced that all trade with Russia would be settled in rubles.
Commentator Tang Jingyuan stated on June 14 to Epoch Times that the impact of the U.S. sanctions on the Russian economy and the Russia-Ukraine war is extensive and profound, potentially leading to a significant devaluation of the ruble and severe inflation. He mentioned that Russia had previously attempted to curb inflation by raising interest rates substantially, but the effectiveness of this measure was limited.
On August 15, 2023, in an effort to counter the depreciation of the ruble and inflation, the Russian central bank raised its key interest rate from 8.5% to 12%. Currently, the interest rate stands at 16%.
Before departing for the G7 summit in Italy, U.S. President Joe Biden announced a new package of financial sanctions aimed at cutting off the rapid technological connections between China and Russia, further isolating Russia from the global financial system and preventing it from accessing the technology needed to support its military arsenal.
The sanctions imposed by the United States will be coordinated by the Departments of Treasury, State, and Commerce.
At the core of the U.S. sanctions is the expansion of “secondary” sanctions, which allow the U.S. to blacklist any banks worldwide that conduct business with sanctioned Russian financial institutions, preventing them from assisting Russia in financing its military, particularly smaller banks in China and other regions.
In a bid to prevent foreign investors from supporting Russia’s military-industrial complex through investments, the U.S. Treasury Department imposed restrictions on the Moscow Exchange, directly impacting several Chinese companies accused of aiding Russia in acquiring key military equipment for war, such as unmanned aerial vehicles, lasers, electronics, and software.
The U.S. sanctions target over 300 entities and individuals, including 46 Chinese entities and individuals.
Tang Jingyuan noted that the U.S. sanctions are essentially aimed at China. The primary targets of the secondary sanctions are financial institutions associated with China. Additionally, the U.S. and UK defense departments had previously indicated that China was either supplying or planning to directly deliver lethal weapons to Russia, which would soon appear on the Ukraine battlefield.
The G7’s joint statement criticized China for supporting Russia and called for China to cease providing continued support to Russian military industrial infrastructure, as well as halt the export of dual-use goods and military components and equipment to Russia. The G7 pledged to continue implementing measures to counteract entities in China and other countries that provide substantive support to Russia’s war machinery.
Wu Jialong stated that the U.S.’s sanctions against Russia are, in fact, paving the way for future sanctions against China. The focus now is on whether the U.S. will hold China accountable for supporting Russia’s war efforts, potentially making China the next target of sanctions.
Following Russia’s sanctions by the West, China has propped up the Russian economy, which should have been in dire straits, by providing increasing levels of support. Thus, China is seen as the lifeline for Russia’s war machinery.
In 2023, the bilateral trade volume between China and Russia reached a record $240.1 billion, representing a growth of over 60% compared to pre-war levels. Chinese-Russian trade accounts for 30% of Russia’s exports and 40% of its imports. Consequently, the Chinese Yuan has become the dominant currency for transactions and savings in Russia.
Russia’s economy has become heavily dependent on China, with Chinese products ubiquitous in Russia. For example, over half of the 1 million cars sold in Russia last year were from China, and the top six car brands by sales in Russia were all Chinese. Additionally, Chinese smartphones like Xiaomi outsell Apple and Samsung, with many household appliances also originating from China.
After Russia’s invasion of Ukraine, the U.S. implemented the first round of financial sanctions against Russia in March 2022. President Biden had believed that these unprecedented sanctions would have made the ruble “almost rubble” overnight. However, with China’s strong support, the ruble bounced back after a brief decline, and the Russian economy continued to grow due to the robust economic boost during war times.
China’s assistance to Russia takes various forms, including purchasing Russian oil, increasing the supply of dual-use military and civilian goods, particularly offering the production of weapons equipment systems, drones, microelectronics, and software.
During a press conference in Prague on May 31, Secretary of State Antony Blinken confirmed that 70% of the machine tools imported into Russia are from China, and 90% of the microelectronic products are also sourced from China.
The recent U.S. sanctions are aimed at severing the extensive connections between China and Russia.
Regarding the impact of U.S. sanctions against Russia on China, Wu Jialong believes that due to the complex political and economic relations between the two countries, the sanctions may lead to future friction between China and Russia, with tensions escalating and potential conflicts arising.