According to Australian and New Zealand Banking Group (ANZ) estimates, Russia’s central bank and sovereign wealth fund may have $140-billion worth of Chinese bonds. Given global sanctions, Russia may seek to obtain Chinese bond assets to get out of trouble.
In a report on Wednesday, analyst Raymond Yeung at ANZ pointed out that The Bank of Russia and the National Wealth Fund could hold $80 billion and $60 billion in yuan-denominated debt, respectively. These combined figures accounted for nearly a quarter of foreign ownership in China’s domestic bond market.
Yuan made up 13.1% of the Russian central bank’s foreign currency reserves in June 2021, compared with just 0.1% in June 2017, while U.S. dollar holdings fell from 46.3% to 16.4%.
The international community has boycotted and frozen Russian funds since it invaded Ukraine. If Beijing decides to resist Western sanctions against Russia and help Russia, a strategic partner, get out of the global financial system, China can provide Russia with a financial lifeline.
Moscow’s Chinese bonds and yuan holdings could be an export payment option for Russia to access critical foreign assets and currencies. However, suppose it needs cash in renminbi to fulfill other payment obligations. In that case, Russia may also consider using it to liquidate assets, using its renminbi assets and China’s cross-border payment system to counter the impact of Western sanctions.
A multibillion-dollar currency swap between China’s central bank and Russia’s central bank will allow both countries to provide liquidity for businesses.
In addition, some Russian banks are banned from using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system. Therefore, China has signed a local payment and settlement system with Russian banks. This platform is considered as an alternative to the global payment system SWIFT.