Russia Plans Yuan-denominated Bonds to Cut Dependence on Dollar

Russia is once again considering issuing yuan-denominated bonds to reduce its financial dependence on the U.S. dollar and strengthen relations with China, the South China Morning Post writes.

Russia had first considered the possibility of selling a yuan-denominated bond back in 2016 and will become the first country to sell a sovereign bond in yuan and list it on the Moscow Exchange if successful while China will also consider selling a ruble-denominated government bond, according to the newspaper.

More than 15 Russian companies and banks have expressed interest in purchasing yuan-denominated bonds on the Moscow Exchange and on exchanges in China, says Denis Shulakov, first vice-president of Russian state-owned Gazprombank. Additional government-led borrowing is necessary to raise money to fund large energy projects that would be mutually beneficial, he noted while speaking during a panel discussion at the St Petersburg International Economics Forum (SPIEF) last week.

Currently, China is Russia’s largest trading partner while Russia is China’s largest crude oil supplier with both countries having made joint investments in various liquefied natural gas and natural gas projects.

Most of these projects have been financed by the equity market or state subsidies and the launch of these new government bonds could add another financing channel to raise money for large energy projects that would be mutually beneficial.

Beijing and Moscow are still in talks to establish a new system for direct yuan-rouble payment settlements for trade. Currently, in bilateral trade, 14% of payments are conducted in yuan while 8% is conducted in rubles. In addition, the Russian central bank has also been substituting the yuan for the U.S. dollar in its foreign currency reserve portfolio to reduce its exposure to the U.S. dollar.