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India has signed mutual recognition agreements (MRAs) with <keyword id="551085" type="General" weightage="20" keywordseo="customs-authorities" source="Orion">customs authorities</keyword> of seven nations and is actively pursuing negotiations for such pacts with other countries, a top official said. The Central Board of Indirect Taxes and Customs and the Federal Customs Service, Russia, this month signed the Authorised Economic Operator (AEO) MRA to provide reciprocal benefits to accredited and trusted exporters of both signatories in the clearance of goods by the customs authorities of the importing country. "The CBIC and the Federal Customs Service, Russia signed the <keyword id="21760232" type="General" weightage="20" keywordseo="Authorized-Economic-Operator" source="keywords">Authorized Economic Operator</keyword> (AEO) Mutual Recognition Agreement, which is a major <keyword id="20467509" type="General" weightage="20" keywordseo="trade-facilitation" source="keywords">trade facilitation</keyword> boost for Indian importers and exporters. While this is the 7th MRA that has been signed by <keyword id="20001024" type="General" weightage="20" keywordseo="indian-customs" source="keywords">Indian Customs</keyword>, negotiations are being actively pursued with many other Customs' administrations," CBIC Chairman <keyword id="159142" type="General" weightage="20" keywordseo="Sanjay-Kumar-Agarwal" source="Orion">Sanjay Kumar Agarwal</keyword> said in a communication to field formation. The AEO programme enables Customs administration to identify safe and compliant exporters and importers and to provide them with better facilitation. AEO MRA is already in place for seven countries, including Korea, UAE, Hong Kong and Taiwan.

India signs customs mutual recognition agreements with seven nations; Actively pursuing more, says CBIC chief

<ul class="summary-list"><li>Russia is proposing alternative payment systems and commodity centers.</li><li>The proposal aims to strengthen BRICS economies' sovereignty and reduce dollar reliance.</li></ul>Russia has released new details on how it could move away from the dollar, part of a long-running effort to buoy trade amid Western sanctions.Earlier this month, Russia's Finance Ministry, its central bank, and Moscow-based consultancy Yakov &amp; Partners outlined the country's vision of what the country is aiming for in a <a target="_blank" class="" href="https://www.yakovpartners.com/publications/imfs/">report.</a>Other than championing <a target="_blank" class="" href="https://www.businessinsider.com/dedollarization-russia-actively-working-brics-local-currencies-platform-us-dollar-2024-6">alternative payment</a> systems based in non-dollar currencies, Russia is also pitching the set-up of centers for mutual trade in commodity resources.Russia is a commodity giant and a major producer of oil, natural gas, gold, and grains. However, the country has been heavily sanctioned by the US following its full-scale invasion of Ukraine, which has impacted its oil and gas trade.The report proposed setting up foundations for commodity trading centers but did not provide details. However, it explained why it was a good idea."This measure will ensure independent pricing and strengthen the sovereignty of the BRICS economies," the report said, referring to Brazil, Russia, India, China, and South Africa — the anchor members of the BRICS emerging markets group.Such a measure would add to what Russia is already doing to keep trade humming amid sweeping sanctions, such as those that block banks from dealing with <a target="_blank" class="" href="https://www.businessinsider.com/russia-economy-all-china-banks-refuse-yuan-ruble-transfers-sanctions-2024-8">payment transactions</a> involving Russian companies.Another offbeat way Russia is beating sanctions is <a target="_blank" class="" href="https://www.businessinsider.com/russia-barter-pakistan-mounting-sanctions-western-war-allies-international-trade-2024-10">barter trade. </a>One Russian company struck an agreement to trade chickpeas and lentils for tangerines, rice, and potatoes from Pakistan, according to Tass state news agency earlier this month.Such alternative payment systems and bartering "are based on a notion that any involved institutions, even if faced with extraterritorial restrictions, will retain unchallenged access to their domestic market that will allow them to effectively facilitate domestic and cross-border transactions," the report said.Moving BRICS trade to trading centers within the bloc would also involve the use of local currencies and facilitate a move away from using the dollar for trade, according to the document.Russia's report on alternative payments and trading systems came weeks before the annual BRICS summit, which will be held in the Russian city of Kazan from October 22 to October 24.The proposal also came months after Russia proposed a grain-trading exchange for BRICS members, as <a target="_blank" class="" href="https://interfax.com/newsroom/top-stories/101594/">Interfax</a> news agency reported in April.BRICS member countries are <a target="_blank" class="" href="https://www.usda.gov/oce/commodity/wasde/wasde1024.pdf">major producers and exporters</a> of grains in the world market, with Russia accounting for about one-quarter of the world's wheat exports. Meanwhile, Brazil accounts for about 60% of the world's soybean exports, and India accounts for about 40% of the world's rice shipments.Most global grain prices are set on the Chicago Mercantile Exchange and are dominated by the US dollar."The BRICS countries, being key participants in the global grain market, cannot fully participate in the formation of prices for economically fundamental and food security-essential products as wheat, barley and corn, world prices for which are formed, and often manipulated, in third countries," Russia's Union of Grain Exporters wrote in a letter to the country's Agriculture Ministry in December when it proposed a BRICS grain exchange.Russia faces an uphill battle in changing the basics of dollar-dependent financial trading systems. Right now, dollar-based trade participants can easily enter and exit their positions, whereas bartering or using other currencies could reduce liquidity and flexibility.Since there's already heavy trading in CME's grain markets, it would be challenging for new exchanges and their products to lure participants over en masse.Brent crude oil futures, for example, are still the world's benchmark and are actively traded. However, their namesake <a target="_blank" href="https://www.shell.co.uk/about-us/sustainability/decommissioning/brent-field-decommissioning/brent-field-decommissioning-programme.html">Brent oil fields</a> in Scotland are being decommissioned due to resource depletion.As the <a target="_blank" class="" href="https://www.imf.org/External/Pubs/FT/GFSR/2015/02/pdf/c2_v2.pdf">International Monetary Fund</a> explained in a 2021 report, "because of the network nature of markets, effects tend to be self-reinforcing— high market liquidity tends to attract more traders and so forth."

Russia pitches trading centers in a widening plan to move away from the US-dominated global financial order 

India's gold and silver imports from its free trade agreement (FTA) partner UAE have skyrocketed 210 per cent to USD 10.7 billion in 2023-24 and there is a need to potentially revise the concessional customs duty rates under the pact to mitigate the arbitrage driving this surge, a report said on Monday. Economic think tank Global Trade Research Initiative (<keyword id="15910220" type="General" weightage="20" keywordseo="GTRI" source="Orion">GTRI</keyword>) said this sharp rise in gold and silver imports is primarily driven by import duty concessions granted by India to the UAE under the India-UAE Comprehensive Economic Partnership Agreement (CEPA). India allows 7 per cent tariffs or customs duty concessions on import of unlimited quantities of silver and a 1 per cent concession on 160 metric tonnes of gold. CEPA was signed in February 2022 and implemented in May 2022. Additionally, India facilitates gold and silver imports by allowing private firms to import from the UAE through the India International Bullion Exchange (IIBX) in Gift City. Previously, only authorised agencies could handle such imports, the report said. "While India's total imports from the UAE fell 9.8 per cent from USD 53.2 billion in FY23 to USD 48 billion in FY24, imports of gold and silver skyrocketed 210 per cent, from USD 3.5 billion to USD 10.7 billion," it said. "Import of all remaining products fell 25 per cent, from USD 49.7 billion in FY23 to USD 37.3 billion in FY24," it said. GTRI Founder Ajay Srivastava said the current import of gold and silver from the UAE is unsustainable as the UAE does not mine gold or silver or add sufficient value to imports. "High import duties in India on gold, silver, and jewellery at 15 per cent are at the root of the problem. Consider lowering tariffs to 5 per cent. This will cut large-scale smuggling and other misuse," Srivastava said. Trade in gold, silver, and diamonds has been prone to misuse due to their low volume but high value and high import duties in India. Low tariff imports of gold, silver only benefit few importers who keep all profits arising through tariff arbitrage and never pass it to consumers, he said. Srivastava suggested the government implement certain measures to help India balance its <keyword id="21681862" type="General" weightage="20" keywordseo="trade-policies" source="keywords">trade policies</keyword>, protect domestic revenue, and ensure fair competition in the import of precious metals and jewellery. It suggested reassessing and potentially revising the concessional duty rates under CEPA to mitigate the arbitrage driving the surge in imports of gold and silver. "At least, implement yearly import quotas (tariff rate quotas) for silver, similar to those for gold, to control the volume of imports and prevent revenue loss," it said, adding that India should rigorously verify the claimed value addition by Dubai-based refiners in gold and silver imports to ensure compliance with CEPA rules of origin. It also asked to tighten regulations around the India International Bullion Exchange (IIBX) at Gift City to control the volume and nature of <keyword id="22080399" type="General" weightage="20" keywordseo="precious-metal-imports" source="keywords">precious metal imports</keyword> and the exchange should not allow country-based exemptions. As increased imports contribute to a higher current account deficit and since gold and silver act more like financial instruments than regular trade items, India should avoid including them in any FTA. "India has granted <keyword id="20542001" type="General" weightage="20" keywordseo="tariff-concessions" source="keywords">tariff concessions</keyword> for these items in many FTAs and under the DFTP (duty-free tariff preference) scheme, so a comprehensive review is needed. India announced the scheme for LDCs (least developed countries) in 2008. Under this, India provides duty free/preferential market access on about 98.2 per cent of India's tariff lines (or product categories). Further, the report stated that silver imports from the UAE increased multifold to USD 1.74 billion in 2023-24 from a meagre USD 29.2 million in 2022-23 due to India charging an 8 per cent duty under the CEPA versus a 15 per cent duty from other countries. "The large 7 per cent tariff arbitrage resulted in a loss of revenue for India of Rs 1,010 crore in FY24. Revenue loss will increase as India has committed to make tariffs zero on unlimited quantities of silver from the UAE within next 8 years," it added. It said this trade is unusual because the UAE just imports large silver and gold bars, melt and convert these into silver grains and unwrought gold for exports. "A check with global refiners will show that value addition in such process is much less than 1 per cent as opposed to 3 per cent required under the FTA," it said. On gold bars, the report said India agreed to import 200 metric tons of gold annually from the UAE with a 1 per cent tariff concession and due to this gold imports rose 147.6 per cent from USD 3 billion in FY23 to USD 7.6 billion in FY24, causing India to lose Rs 635 crore in revenue in FY24. Similarly, India's jewellery imports have increased 187.6 per cent from USD 1.1 billion in FY23 to USD 3.3 billion in FY24, whereas these imports from the UAE have increased 290 per cent from USD 347 million in FY23 to USD 1.35 billion in the last fiscal.

Gold, silver import from UAE surged 210% in 2023-24; Need duty revision in FTA: GTRI

<ul class="summary-list"><li>The Chinese yuan made up 99.6% of Russian foreign exchange market in June, Bloomberg reported.</li><li>This comes after the dollar and euro were barred from Russia's main exchange.</li></ul>The Chinese yuan's takeover of Russia's foreign-exchange market is nearly complete after US sanctions forced the country's main exchange to cut ties with the dollar and euro, <a target="_blank" href="https://www.bloomberg.com/news/articles/2024-07-09/saudi-arabia-veiled-threat-to-g7-over-russia-assets?srnd=markets-vp">Bloomberg</a> reported.In June, yuan transactions made up 99.6% of FX-trading volumes in the country, a cited Bank of Russia <a target="_blank" href="https://cbr.ru/Collection/Collection/File/49290/ORFR_2024-06.pdf">review</a> said. One month prior, the currency accounted for only 53.6% of this market.Fresh US <a target="_blank" href="https://www.businessinsider.com/russia-sanctions-us-china-ukraine-war-economy-janet-yellen-treasury-2024-6">sanctions targeted the Moscow Exchange</a> in mid-June, the country's main hub of financial transactions. Alongside it, restrictions were also placed on two other entities that facilitate the greenback's use in Russia.In response, <a target="_blank" href="https://markets.businessinsider.com/news/currencies/russia-dollar-ruble-exchange-us-sanctions-currency-yuan-ukraine-war-2024-6">Moex barred the exchange of dollars and euros</a> that same day, closing down a market that's been active since the Cold War.Average daily volumes in the foreign exchange market contracted by close to a third in the month's second half, the bank report said. And without the dollar or euro to compete against it, that only helped the yuan catapult higher.Although Russians are still free to buy Western currencies through interbank or over-the-counter markets, these are costly alternatives. Here, the yuan too has also gained — its share of OTC trades has risen to 40%, Bloomberg noted.At least one analyst predicted this outcome. Soon after the US Treasury imposed its sanctions, Alexandra Prokopenko forecast that Russians would need to find a stable currency alternative to facilitate its trade — and with the yuan's use already amid stronger ties between Moscow and Beijing, it <a target="_blank" href="https://markets.businessinsider.com/news/currencies/china-yuan-russia-trade-dedollarization-dollar-dominance-war-us-sanctions-2024-6">would win out</a>:"The new sanctions are turning the yuan into the main currency of exchange trading and settlements in Russia once and for all," the Carnegie Russia Eurasia Center fellow wrote. She warned this could mark a slow but permanent shift away from the dollar's global dominance.However, a surge of Russian demand for the Chinese currency has created a yuan liquidity shortage, Bloomberg <a target="_blank" href="https://www.bloomberg.com/news/articles/2024-07-09/russia-s-embrace-of-chinese-yuan-stalls-over-risk-from-sanctions">separately reported</a>. Meanwhile, yuan liquidity on swap operations has doubled since the pullback of dollar and euro swaps, cited data from the Bank of Russia shows.To be sure, the US sanctions loom large over Chinese banks as well, and many big dealers have ended <a target="_blank" href="https://www.businessinsider.com/china-russia-secondary-sanctions-foreign-banks-yuan-payments-trade-us-2024-3">yuan transactions with Russia due to this</a>.

Russian FX trading is almost entirely in yuan as sanctions restrict dollar use 

<ul class="summary-list"><li>Russia and China could revive barter trade to counter Western sanctions, Reuters reported.</li><li>Other countries that have looked at barter trade with Russia include Afghanistan, Iran, Pakistan, and India.</li></ul>Russia and China are planning to revive the age-old practice of barter trade to get around Western sanctions, <a target="_blank" class="" href="https://www.reuters.com/markets/first-russia-china-barter-trade-may-come-this-autumn-sources-say-2024-08-08/">Reuters</a> reported on Thursday.The deals could involve agriculture and could come as soon as this fall, the news agency reported, citing anonymous trade and payments sources. One source at a Russian industrial firm told the news agency that Russian firms were also talking about the exchange of metals for Chinese machinery imports.Such arrangements are being discussed as trade between the two countries has become increasingly difficult amid tightening Western sanctions against Russia over its full-scale invasion of Ukraine in February 2022.Recently, about 80% of bank transfers made in the Chinese yuan were <a target="_blank" class="" href="https://www.businessinsider.com/russia-economy-china-yuan-payments-delay-months-bounce-back-sanctions-2024-7">bouncing back</a> with no explanation after being stalled for weeks while banks decide whether they could transact, Russian media outlet Kommersant reported last month.Before this year, Russia and its trade partners skirted sanctions by using smaller banks and other payment modes or non-US dollar currencies to circumvent the West's ban of <a target="_blank" rel="noopener noreferrer" class="c-link" href="https://www.businessinsider.com/us-eu-announce-some-russian-banks-removed-from-swift-2022-2">some Russian banks</a> from the widely used SWIFT messaging system.However, this strategy has been hitting snags since the US approved <a target="_blank" rel=" nofollow" href="https://www.reuters.com/world/us/us-takes-aim-financial-institutions-with-new-russia-sanctions-authority-2023-12-22/">secondary sanctions</a> targeting financial institutions that were helping Russia. These restrictions prompted <a target="_blank" rel="" class="" href="https://www.businessinsider.com/russia-economy-financial-system-us-sanctions-oil-trade-foreign-banks-2024-3">global banks</a> from <a target="_blank" rel="" class="" href="https://www.businessinsider.com/china-biggest-banks-stop-russia-payments-icbc-ccb-boc-2024-2">China </a>to the United Arab Emirates, Turkey, and Austria to reduce transactions with Russia.Since barter trade doesn't require monetary payments, it would allow Russia and China to skirt such issues.<h2 id="4ef98aff-cc26-4454-855d-f1ccddf1c7c0">Russia has used barter trade before</h2>It would not be Russia's first time using barter trade.It was practiced during the <a target="_blank" rel=" nofollow" href="https://www.joc.com/maritime-news/soviet-union-allows-return-barter-some-trading-deals-partners-former-e-bloc_19910708.html">Soviet era</a> and <a target="_blank" rel=" nofollow" href="https://www.nytimes.com/1998/09/06/world/as-ruble-withers-russians-survive-on-barter.html">in the years following the bloc's collapse.</a> At the time, China was a key trading partner.In August 2022, the <a target="_blank" class="" href="https://www.businessinsider.com/taliban-import-russia-oil-barter-exchange-afghanistan-raisin-minerals-medicine-2022-8">Taliban regime in Afghanistan</a> also discussed barter trade with Russia that could involve trading Russian crude oil products in exchange for raisins, minerals, and medicinal herbs, according to RIA Novosti, a Russian state-owned news agency.Heavily-sanctioned <a target="_blank" class="" href="https://www.reuters.com/business/energy/russia-iran-discuss-swapping-supplies-oil-gas-goods-logistics-2022-05-25/">Iran</a> and the <a target="_blank" class="" href="https://timesofindia.indiatimes.com/india/india-plans-barter-for-russian-fertiliser/articleshow/91750978.cms">Indian government</a> were also in talks with Russia to practice barter trade in the early months of the Ukraine war.Last year, cash-strapped <a target="_blank" class="" href="https://www.voanews.com/a/pakistan-allows-barter-trade-with-iran-afghanistan-russia-/7120806.html">Pakistan</a> authorized the barter trade of specific goods with Russia.It's unclear if any of the parties eventually entered into any barter deal with Russia.Major economy India, for one, has managed to work around payment issues to become one of Russia's <a target="_blank" class="" href="https://www.businessinsider.com/russia-economy-divert-oil-exports-europe-india-china-circumvent-sanctions-2023-12">key trading partners.</a><h2 id="a4ac3f71-bfea-4e2c-bbc1-8c442e62804f">Problems with barter trade</h2>Even so, barter trade isn't widely practiced in modern society."Exchanging goods for other goods would have to be manually accounted for, which would create major difficulties for any large or technologically advanced businesses using automated accounting systems," wrote Alexandra Prokopenko, a fellow at <a target="_blank" class="" href="https://carnegieendowment.org/russia-eurasia/politika/2022/09/bartering-cryptocurrencies-and-yuan-russia-seeks-alternatives-to-trading-in-dollars">the Carnegie Russia Eurasia Center,</a> in a September 2022 blog post.Barter trade also makes it difficult for tax collection, she added.Russian authorities are working on other ways to skirt Western payment sanctions.The country is rushing to set up <a target="_blank" class="" href="https://www.businessinsider.com/russia-economy-moscow-cryptocurrency-bill-digital-ruble-trade-payments-sanctions-2024-7">alternative payment systems, </a>including crypto, to facilitate trade.

Western sanctions are so tight that Russia and China could soon use an ancient trading system. It's worked before.

<ul class="summary-list"><li>Trade with Russia has slumped in the first quarter amid tightening US sanctions, the Financial Times said.</li><li>Companies in countries such as China are turning to costly underground channels to keep trading.</li></ul>Moscow's key trade partners are getting cold feet, and it's causing export volumes to shrink as a US clampdown triggers reprisal fears among those who do business with the Kremlin.According to the <a href="https://www.ft.com/content/b4a556b0-0402-4114-9428-869bd49cf23c" target="_blank" rel="noopener">Financial Times</a>, shipments from Turkey and China have dropped meaningfully in the first quarter. For instance, exports from Ankara have plunged by a third year-to-year, while "high-priority" items sent to the region have fallen 40%. These are consumer goods that are critical to Moscow's war machine.Behind the shift is the US Treasury Department. After a December executive order bolstered its sanctioning power, the department has amplified warnings against foreign lenders that facilitate trade with Russia.That's included banks in <a href="https://www.businessinsider.com/russia-economy-financial-system-us-sanctions-oil-trade-foreign-banks-2024-3">other countries as well</a>, such as the United Arab Emirates and <a href="https://www.businessinsider.com/us-russia-western-sanctions-raiffeisen-foreign-bank-exit-deripaska-stock-2024-3">Austria</a>. To avoid Western repercussions, most have tightened their exposure to Russian counterparties, with the repercussions now felt by on-the-ground traders and investors."It's getting harder and harder every month. One month it is dollars, the next month it is euros; within six months you basically won't be able to do anything. The logical endpoint of this is turning Russia into Iran," a senior Russian investor told the outlet, referencing the sanctions laid against Tehran.Russia's difficulty in moving either money or goods is a rising threat, as the country has escalated its <a href="https://www.businessinsider.com/russia-economy-hard-landing-recession-ukraine-war-military-spending-putin-2024-5">wartime spending to keep its economy running</a>.In China, <a href="https://www.businessinsider.com/china-russia-trade-relations-shipments-us-financial-sanctions-threat-crypto-2024-4">underground channels</a> are cropping up, as domestic companies look for alternative ways to access the Russian consumer. With many <a href="https://www.businessinsider.com/china-russia-secondary-sanctions-foreign-banks-yuan-payments-trade-us-2024-3">banks no longer an option</a>, currency brokers and cryptocurrency — an asset banned in China — are gaining popularity.On the Russian side, the rise of middlemen is cutting into profits. According to FT, metals group oligarch Vladimir Potanin recently blamed these mediator's for his company's falling revenue, citing their 5% to 7% commissions.But while such go-betweens are adding both complexity and costs to those still trying to trade with Russia, it may end up also adding difficulty to Western efforts to keep track of trade, sources told the outlet.At the same time, the US' crackdown has proliferated trade in the Russian ruble, as other currencies increasingly fall out of favor.For instance, rubles are now the mainstay currency for Indian traders buying Moscow crude, after dealers in the UAE cut off payments in dirhams, a Russian banking source said. That's as foreigners are still free to buy rubles on the Moscow Exchange when settling payments with Russian parties.In fact, the share of Russian exports paid in rubles jumped to 40% in February, having hovered under 15% in pre-war years. Imports also witnessed a rise.Still, the ruble faces restricted convertibility, making it difficult to reach trade volumes once possible under the dollar.

The US crackdown on Russian trade is working as Putin struggles to fund his war

<ul class="summary-list"><li>Russia's Moscow Exchange halted dollar and euro trading on Thursday.</li><li>That's after the US announced a broad sanctions package, which included the central exchange.</li></ul>Russia's central exchange has barred dollar and euro trading, spelling an end to a market that's been open since the Cold War. Trades were halted Thursday on the Moscow Exchange after it became one of many targets of an expansive <a target="_blank" href="https://www.businessinsider.com/russia-sanctions-us-china-ukraine-war-economy-janet-yellen-treasury-2024-6">new US sanctions package</a>. Also targeted were Russia's National Clearing Center and the National Settlement Depository, which similarly facilitate the dollar's exchange. The latest sanctions are part of a US effort to sever Russia from foreign financial support, taking aim at virtually any global lender that transacts with Moscow. Restrictions were also placed on Russian stock exchanges to stop investors from profiting on the war in Ukraine.According to the <a target="_blank" href="https://www.ft.com/content/50d6bcd1-f1f6-41a1-bb26-a5482654883f">Financial Times</a>, Moex' resulting dollar restriction caused the greenback's rate to spike among local banks. Where the central exchange offered the US currency at under 90 rubles, some lenders have now sold it for 120-200 rubles.The spread between buying and selling also ballooned, more than doubling from pre-sanction levels at Russia's main state lender, Sberbank.Meanwhile, some lenders have stopped selling greenbacks altogether, and Russians were lining up at one lender that still offers the service, <a target="_blank" href="https://www.bloomberg.com/news/articles/2024-06-13/usd-rub-after-us-dollar-trade-sanctions-russians-look-to-yuan-cny">Bloomberg</a> said, citing local media.While over-the-counter transactions would remain available, that will still likely lead to higher costs for Russian consumers. Both importers and exporters involved in the Russian market can expect higher prices.Russia's relationship with foreign currencies has already proven volatile, given that sanctions have been an ongoing headwind since 2022.Moscow has instead found support in China's currency and has grown significantly closer to Beijing recently. Last month, the yuan made up over half of foreign currency trades in Russia, the FT reported.But new US sanctions could impact yuan transactions, as Chinese lenders may feel dissuaded from dealing with Russian banks.That's already<a target="_blank" href="https://www.businessinsider.com/china-russia-secondary-sanctions-foreign-banks-yuan-payments-trade-us-2024-3"> been the case</a> this year, as Chinese dealers grew anxious about losing access to the dollar.

Russia shuts down dollar and euro trading after sweeping US sanctions take aim at Moscow's financial lifelines

<ul class="summary-list"><li>The latest batch of US sanctions against Russia will promote further use of the yuan, a think tank said.</li><li>It argued that as ruble volatility increases, the Chinese currency will offer stability.</li></ul>Fresh sanctions on Russia are too late to be a game-changer, but they will help cement the role of China's yuan in place of Western currencies, a think tank said."There is still a long way to go before there is a real threat to the dominance of the dollar, but the trend toward the fragmentation of the global financial system cannot be reversed now," Alexandra Prokopenko, a Carnegie Russia Eurasia Center fellow, <a target="_blank" href="https://carnegieendowment.org/russia-eurasia/politika/2024/06/finance-sanctions-russia-currency?lang=en">wrote</a>.The commentary comes as a <a target="_blank" href="https://www.businessinsider.com/russia-sanctions-us-china-ukraine-war-economy-janet-yellen-treasury-2024-6?utm_medium=ingest&amp;utm_source=markets&amp;_gl=1*15mnw2c*_ga*MTMxNDIwNDI1Ni4xNjc1Njg3OTU4*_ga_E21CV80ZCZ*MTcxODk5MDI2Ny4zNTIuMS4xNzE4OTk2MzU3LjU3LjAuMA..">new batch of US sanctions</a> was announced earlier this month, meant to apply wide-sweeping pressure on Moscow's remaining financial lifelines. Among targets were the Moscow Exchange, and other major entities that facilitate currency transactions.In turn, Moex <a target="_blank" href="https://markets.businessinsider.com/news/currencies/russia-dollar-ruble-exchange-us-sanctions-currency-yuan-ukraine-war-2024-6?_gl=1*axik8n*_ga*MTMxNDIwNDI1Ni4xNjc1Njg3OTU4*_ga_E21CV80ZCZ*MTcxODk5MDI2Ny4zNTIuMS4xNzE4OTk0NTU2LjQ0LjAuMA">restricted the exchange of dollars and euros</a>, effectively halting the chief source of access that Russians had for Western currencies.That's not to say that access to these tenders is completely off-limits; it will instead skew towards costly interbank and over-the-counter markets. And given the additional complexity of sanctions on these dealers, that could create various exchange rates for the ruble.The official rate will now be set by Russia's central bank.All told, this is likely to worsen ruble volatility, and make its use in foreign trade more complicated. In its place, a more stable currency will benefit, Prokopenko said:"The new sanctions are turning the yuan into the main currency of exchange trading and settlements in Russia once and for all," she predicted. "In May, its share in exchange trading once again hit a new record, reaching 53.6 percent. Its share in the over-the-counter market was 39.2 percent."Although the new US restrictions threaten secondary sanctions on foreign institutions that facilitate financial ties with Russia, this likely won't eradicate the yuan's trade, Prokopenko added.Of course, while Chinese step away from sanctioned entities, their place will likely be filled by institutions formed exclusively to operate with Russia. Otherwise, a new exchange intermediary might crop up in place."Both Moscow and Beijing have shown that they are capable of adapting to evolving sanctions. When leading Chinese banks stopped dealing with Russian clients over the threat of secondary sanctions, regional banks stepped up to take their place," she said. "Schemes with numerous <a target="_blank" href="https://www.reuters.com/business/finance/half-russias-payments-china-made-through-middlemen-sources-say-2024-04-26/">intermediaries</a> from places such as Kazakhstan and the UAE also began to be used more actively, and companies began to use <a target="_blank" href="https://www.rbc.ru/business/29/05/2024/6656597b9a79471506437d2c">cryptocurrencies</a> in payments.While the sanctions package will definitely create financial pains for the Kremlin, Prokopenko argued that their application should have occurred years prior to be most effective.Since 2022, Russia has had time to create an infrastructure for sanctions evasion, and new payments systems have been developed that limit the need for dollars and euros.

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