Russia is in a ridiculous situation where it wants to balance the act of de-dollarization while keeping its economy afloat. The Putin administration is keeping its leg in two different boats in an attempt to bring the US dollar down. The move is only causing harm to its native economy and its local currency, the Russian Ruble. The thirst to quench the de-dollarization agenda has left Russia with no other choice but to use the Chinese Yuan, which is dipping hard against the US dollar.
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The Central Bank of Russia has few options left to keep as reserves other than the Chinese Yuan and gold. The narrowing down of its reserves will only affect its economy leading to the de-dollarization agenda going helter-skelter. Russia’s Dependency on the Chinese yuan for reserves is risky as the currency is down 2.1% year-to-date in 2024 against the US dollar.
In addition, even Russia’s close ally India does not want to settle payments in the Chinese Yuan for crude oil. This comes at a time even after India joined the de-dollarization agenda to push local currencies ahead for cross-border transactions.
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De-dollarization Agenda: Russia Faces Chinese Yuan Woes
The de-dollarization initiative kick-started by China and Russia is hurting their respective economies. As the Chinese Yuan and other local currencies fall against the US dollar, Russia and China’s economies remain on a slippery slope.
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“The exchange rates of these currencies are highly volatile. The markets have low liquidity, and in a number of such countries there are restrictions on the movement of capital, which is an obstacle to their use,” the Russian Central Bank said in its report. “These factors predetermine the key role of the Chinese yuan in the formation of reserve assets,” it said. In conclusion, the de-dollarization initiative is proving to be costly for both Russia and China.