The Chinese yuan has helped fund Russia's trade and war machine — but those days may be numbered

• The Chinese yuan has become a key currency for Russia's trade settlement.
• But tightened US sanctions are freezing and delaying yuan payments, Bloomberg reports.

Western sanctions have shut Russia out of the dollar-dominant global financial order, but the country has managed to keep its wartime economy humming thanks to the Chinese yuan.

But even this line of trade looks like it's starting to get shut down, Bloomberg reported on Wednesday. It's unclear how widespread this issue is.

Several unnamed major Russian commodity exporters told Bloomberg that trade with China has become increasingly difficult as even direct payments made in the yuan are getting frozen or delayed. This is the same with Chinese customers buying Russian products, they told the media outlet.

The US tightened sanctions on Russia in June, but there were already problems before this round of restrictions, according to earlier local media reports.

Last June, a major Chinese lender started restricting transitions between Russian clients and lenders in the West. In February, some Chinese state banks stopped accepting payments from sanctioned Russian financial institutions due to fears of US secondary sanctions.

The problem appears to be widening as even some smaller Chinese lenders are not processing yuan payments to Russia, per Bloomberg.

In mid-June, analysts at Sberbank — a Russian bank major — acknowledged there had been problems setting trade in the yuan.

Russia explores alternative payment infrastructure

Bloomberg's report about the difficulties Russia has with yuan payments — one of its last few international currency options — highlights the challenges the country's isolated economy faces amid Western sanctions.

The West blocked some Russian banks from the widely used SWIFT messaging system for payments early in the war, but Russia and its trade partners have been able to skirt sanctions by using smaller banks or other payment modes.

Russia is now looking into alternative payments infrastructure — which a top Russian banker said should be made a "state secret" because it's likely the West would shut them down really fast.

On Wednesday, Russia's money laundering watchdog said the country should create a cryptocurrency payments infrastructure, Reuters reported.

"This is a need for businesses, especially in cases involving sanction mechanisms, when they need to enter the international market, and it can't always be resolved through standard methods," said the watchdog's head, Yuri Chekhanchin, per the news agency.