Russia Expected to Start Buying CNY to Replenish Its Foreign Reserves

  • Russia is likely to start buying Chinese yuan to replenish its FX reserves as soon as May 2023, per Bloomberg Economics.
  • This would be the first time Russia has replenished its FX reserves since it invaded Ukraine.
  • The move indicates that Western sanctions and a G7-led price cap on Russian crude aren’t enough to curb Russia’s energy revenues.

Russia is likely to start buying foreign currency as soon as this month — marking the first time Moscow has replenished the country’s reserves since it invaded Ukraine in February 2022.

Moscow is likely to snap up around $200 million in Chinese yuan each month, Bloomberg Economics reported on Tuesday. The yuan is one of the few key currencies available to Russia after Western sanctions cut the country off from the world’s dollar-denominated financial system.

Russia stopped buying foreign currency in late January 2022 due to market volatility, shortly before it invaded Ukraine. After its invasion of Ukraine, Russia was hit with sweeping Western sanctions and it suspended its currency intervention program. By June, a US-backed global task force had blocked over $300 billion worth of assets held by Russia’s central bank.

Russia resumed its currency intervention program again in January 2023, starting with the yuan. Russia’s impending purchase of the Chinese currency would mark a reversal of its yuan sales from its reserves to cover its budget deficit — which hit $29 billion in the first quarter of 2023. The country has been cutting yuan sales since February, per Bloomberg Economics.

“The volumes of FX purchases will be small initially, but highly symbolic as they will show that the country instead of eating through reserves is building them,” said Alexander Isakov, a Russia economist, at Bloomberg Economics.

Moscow’s resumption of foreign currency reserve interventions would indicate that Western sanctions and a G7-led price cap on Russian crude aren’t enough to curb Russia’s energy revenues.

How has Russia kept up energy revenues despite sanctions?

Russia, an energy giant, has managed to maintain its energy revenues even in the face of Western sanctions.

In large part, the Kremlin has accomplished this by forcing oil producers like Gazprom and Lukoil to pay more taxes, Bloomberg reported.

Russia has also been able to counter Western-led restrictions by redirecting oil exports to alternative markets such as China and India. The two Asian countries have been snapping up so much Russian crude that Russia’s first-quarter seaborne crude exports surpassed levels in the same period last year, according to Kpler, a commodities analytics firm.

In April, the International Energy Agency said Moscow’s revenue was down about 43% from a year ago. But oil prices have been getting support since early April due to production cuts from OPEC and Russia. On the demand side, China’s economic reopening after nearly three years of on-off COVID-19 lockdowns is also expected to give support to prices.

US crude oil futures are down 5.8% so far this year to around $76 a barrel, but are up nearly 14% from this year’s low of around $67 a barrel. International Brent oil futures are down 7.6% so far this year at around $79.50 a barrel but are up 9% from this year’s low.

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