Russian banks must increasingly favour national currencies like the rouble or China’s yuan over global currencies when carrying out cross-border trade, Andrey Kostin, the head Russia’s second-largest bank VTB, told Vedomosti business daily.
Kostin told the newspaper in an interview published on Monday that it was essential for Russian banks to move away from using the euro and the dollar when trading goods with other countries. Demand for the yuan in Russia has increased since Feb. 24 when Russia sent tens of thousands of troops into Ukraine and the West imposed sweeping sanctions against Moscow, limiting its access to the dollar and euro markets. The sanctions on major Russian banks, including state-controlled VTB have effectively cut lenders off the global financial system.
“We need to create a system where these (cross-border) settlements do not go through known international lines of communication and are quite closed. And the market will gradually emerge. We need mechanisms that would allow both sanctioned and non-sanctioned payments to be made,” Kostin said. The Russian finance ministry has said that the U.S. dollar and euro could become “toxic” currencies, while the central bank said in August that Russia is considering buying the currencies of “friendly” countries such as China, India and Turkey to hold in its National Wealth Fund (NWF).
While China’s yuan market was already liquid enough to facilitate cross-border trading, more “political will” was needed for Russia and its trading partners to develop cross-border trade in other national currencies, Kostin said. Yana Pleshkova, head of sales in Moscow Exchange’s FX market department, told reporters recently over 10% of spot-market transactions on Russia’s largest stock exchange was currently carried out in Chinese yuan.
Russia could seek to boost the use of other national currencies bilaterally or within international frameworks such as the Eurasian Economic Union, Shanghai Cooperation Organisation or BRICS, Kostin said. Kostin also said VTB was working on solving an issue affecting Russian retail investors.
Western sanctions have blocked their access to foreign security holdings, but the total amount of funds frozen remained unclear. ($1 = 1.0077 euros)
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