Why is Russia so obsessed with the Chinese yuan? – Does it even make sense?

Ever wondered why Russia seems to be head over heels for the Chinese yuan? Well, pull up a chair, because we’re diving deep into this fixation. Let’s be clear from the start: Russia’s enthusiasm for the yuan isn’t a fleeting crush; it’s a strategic move born out of necessity and a touch of desperation.

The Financial Tightrope

Russia’s been walking a financial tightrope lately, thanks to its ongoing conflict in Ukraine. This situation has left the country in a bit of a pickle, with its international assets getting the cold shoulder from the global community. Imagine having a wallet full of cash that no one will accept – that’s pretty much the bind Russia finds itself in.

In its annual financial heart-to-heart, Russia’s central bank spilled the beans. The gist? The Chinese yuan is basically the only friend Russia has left in its currency clique. The bank lamented the lack of viable alternatives, pointing out that currencies from other “friendly” countries are about as stable as a house of cards in a wind tunnel. Low liquidity, high volatility, and capital movement restrictions make them about as appealing as a lead balloon.

Meanwhile, China’s standing in Russia’s economic circle has been getting rosier by the day. As sanctions from the West rain down, Russia’s been tilting its economic compass towards Asia, with China being the belle of the ball. This shift isn’t just about keeping the lights on; it’s a fundamental reorientation of Russia’s trade and financial strategy.

Interestingly, the yuan has swaggered its way to the top, dethroning the US dollar as Russia’s currency MVP. Before the tanks started rolling, the yuan was barely a blip on Russia’s financial radar. Fast forward to today, and it’s the star of the show.

A Golden Lining in a Cloudy Sky

Russia’s financial woes aren’t just about currency politics; there’s a bigger picture involving the country’s piggy bank, officially known as the National Wellbeing Fund (NWF). This fund, which took years to fatten up, has been on a diet since the conflict began, shrinking faster than a snowman in a sauna.

As sanctions bite and the economic screws tighten, Russia’s been dipping into this fund to keep the economy from hitting rock bottom. But here’s the kicker: a big chunk of this fund is tied up in assets that are as liquid as a block of concrete. That means they can’t be easily converted to cash when the going gets tough. Economists are ringing alarm bells, warning that the fund’s once-impressive size is now more of an illusion, with only a fraction available for rainy days.

The situation is precarious. With oil prices playing hide and seek, the NWF’s cushion is thinning out. Russia’s finance minister has hinted at other budget-balancing acts if the fund’s reserves start to resemble a drought-stricken riverbed. But let’s not sugarcoat it: if oil prices take a nosedive, Russia could be staring down the barrel of a very empty financial shotgun.

So, back to our original question: Why the fixation with the Chinese yuan? For Russia, it’s a matter of survival. With traditional financial avenues blocked and the West turning its back, the yuan offers a lifeline, a way to keep the economy afloat amid a sea of sanctions and geopolitical isolation.

Does it make sense? Absolutely. In the chess game of international finance, Russia is making calculated moves to safeguard its economy.

And so there you have it.