Russia has been using the Chinese yuan to get around sweeping Western sanctions — but this side door may be closing

Bank of China has restricted yuan transactions between Russian clients and Western banks, per RBC.

The bank made the move over fears of secondary sanctions from the West, a source told RBC.

Russia has been using the Chinese yuan to get around Western sanctions.

Russia has been using China’s yuan to get around sanctions — but at least one major Chinese bank has restricted transfers from Russia over fears of secondary sanctions from the West.

The Bank of China, a major Chinese lender, has started restricting transactions using the yuan between Russian clients and lenders in the US, the European Union, Switzerland, and the UK, Russia’s privately owned RBC business-news outlet reported on Sunday, citing representatives from Modulbank and Finam.

The restrictions affect transfers involving the Bank of China as the correspondent, or intermediary, bank moving money from Russia to third-party countries.

“The decision was not made by China, but rather by the EU and the US. That is how they are trying to ramp up the sanction pressure by choking off alternative channels in the form of yuan,” Pavel Semyonov, the chairman of the board of Modulbank, told RBC, per a Novaya Gazeta Europe translation. Semyonov told RBC that Russian clients could still make yuan transfers within the Bank of China network.

Dmitry Lesnov, Finam’s customer-service-development head, told RBC that the bank was imposing the transfer restriction over fears of secondary sanctions or other restrictions.

Bank Finam confirmed to Insider it had received notice of the Bank of China’s restrictions on yuan transactions.

“The restrictions affected Bank Finam a little — just a small part of payments in yuan was transferred through the Bank of China,” Andrey Shulga, the bank’s chairman, told Insider. He added that the lender had already found alternative payment routes for affected payments.

The Bank of China’s crackdown on intermediate yuan transfers comes as the Russian economy has become more dependent on the currency amid sanctions over the Ukraine war, including the barring of some Russian banks from the SWIFT global financial-messaging system.

The Chinese yuan surpassed the US dollar as the most heavily traded currency in Russia in February and March, according to Bloomberg.

Much of the usage is tied to Russia’s trade with China. In May, Reuters reported, citing trading executives with direct knowledge of the matter, that China had used the yuan for almost all the Russian oil it had bought over the past year.

Semyonov told RBC that Russian yuan transfers to the US and the EU made up just 3% of all transfers in the currency.

The Bank of China and Modulbank did not immediately respond to requests for comment from Insider.

Article Credit: https://uk.finance.yahoo.com/news/russia-using-chinese-yuan-around-051945912.html