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Home Economics

Amid heavy sanctions, will China use its digital currency to save Russia?

Rate Captain by Rate Captain
March 14, 2022
in Economics, News
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In recent years, China and Russia have attempted to lessen their reliance on Western financial institutions, technology, and markets, motivated by their leaders’ shared aim to protect themselves from economic coercion by the West. 

This mutual suspicion of the US and its allies has deepened economic ties, with China being Russia’s single largest trading partner. In an isolated Russia, the Chinese could now be Russian President Vladimir Putin’s lifeline, reducing the impact of Western sanctions for his invasion of Ukraine.

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China’s digital yuan payment system might be an alternative for the Swift system, which is being utilized in sanctions against Russia. 

In crises, both China’s e-CNY and the Cross-Border Interbank Payment System (CIPS) can facilitate international transactions and circumvent similar sanctions. However, the question reminds of china would use its digital currency to help the Russian economy. 

What experts are saying 

Fintech consultant and Author, Richard Turrin, told CBNC that China’s digital currency would not be used as a bailout for Russia. 

He said, “the last thing that China wants to do with its new baby- the China digital currency (Yuan) is to put it into the mud while in the sanctions-busting game. The digital Yuan is a baby in the sense that it has not been launched domestically and has not even had any testing on the international basis.”

He believes that the digital yen has the power to would shine the  dollars., “The digital Yuan will slowly surpass the dollar in few years to come as China is the largest trading country and the Yuan will be used when buying from China,” he said. 

Citic Securities analyst Ming Ming wrote in a research note, “We believe that it is necessary and urgent to vigorously promote yuan internationalisation, especially the development of the CIPS system and the digital yuan”. 

While the market draws attention to China’s yuan payment and settlement system, which has 75 direct participants including Citibank, HSBC and Deutsche Bank, and 1,205 indirect participants, any entity dealing with Russia-linked businesses could be subject to sanctions.

“One distinctive characteristic of digital yuan is that payment and settlement happen concurrently. This will help reduce reliance on bank accounts and bypass financial intermediaries in some scenarios,” Ming said.

What you should know about the China digital currency 

According to Mu Changchun, director-general of the central bank’s Digital Currency Research Institute, the Chinese CBDC is being used to make 2 million yuan ($315,000) or more in payments each day at the Winter Olympics. 

The digital yuan is being tested in cities across China, including Shenzhen, Suzhou, Xiongan, Chengdu, Shanghai, Hainan, Changsha, Xian, Qingdao, and Dalian, in addition to the Winter Olympics. 

The PBOC later stated that the digital yuan had 261 million unique users at the end of 2021, with transactions totalling 87.5 billion yuan ($13.78 billion). In addition, the digital yuan is now accepted by almost 8 million merchants.

 

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