The Central Bank offered the yuan to the market after the deficit appeared

The Central Bank will provide banks with yuan to “limit volatility” in the money market, according to a statement on the regulator’s website. At the end of 2022 and the beginning of 2023, a yuan deficit formed on the market, the Central Bank previously recognized.

The Bank of Russia will offer banks a new tool that will allow them to exchange yuan for rubles for one day – a swap for selling yuan for rubles with their subsequent purchase. Banks will be able to make a deal with the Central Bank on the Moscow Exchange and receive the necessary liquidity in Chinese currency to complete customer transactions.

A currency swap is a contract under which the parties agree to conduct two transactions: first to buy a currency, and then to sell it. The term of such a contract may be different, but in this case we are talking about one day. The Central Bank has been conducting such transactions since 2014 in dollars and euros.

Now the Russian financial market has been cut off from the dollar and euro system, and the yuan is gaining more and more weight. So, since the beginning of 2022, the share of the yuan in trading on the Moscow Exchange has grown from single values ​​to 25% by November, follows from a review by Alfa-Bank.

The distribution of currencies in international trade has also changed. So, if in 2021 the share of export contracts in dollars was 55%, then by the end of Q3 2022 it fell to 34%. Over the same period, the share of exports paid for in RMB rose from zero to 14%.

This suggests that about 60% of exports to China were denominated in yuan by the end of the year, Alfa-Bank analysts wrote. With such a share, $6 billion worth of Chinese currency can come to Russia every month.

The value of “currency swap” operations for the “yuan – ruble” pair has increased significantly, states the Central Bank. The new tool will limit “the volatility of money market rates in the event of temporary imbalances,” the regulator said. The daily limit on the new instrument will be 10 billion yuan, but the Central Bank will be able to adjust it.

And the imbalance has already emerged. In December-January, there was a deficit of the Chinese currency on the foreign exchange market: rates on ruble-yuan swaps dropped to negative values.

The deficit could have developed due to transactions of a major player who needed to withdraw yuan to accounts in China at the end of the year, a top manager of a major bank told Frank Media. In mid-January, the situation stabilized, the Central Bank noted.

In addition, from January 13, the Central Bank began to sell reserves in yuan from the NWF in the interests of the Ministry of Finance and within the framework of the updated budget rule. In January, the Ministry of Finance intends to sell 54.5 billion rubles worth of yuan in order to send them to the budget.

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