Sanctions driving diversification away from the dollar

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Sanctions driving diversification away from the dollar

China’s support for Russia is part of its strategy to reduce the world’s dependence on the greenback – and it might just be starting to work.

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China’s currency has suffered some pain since Russia invaded Ukraine. The yuan was trading at around 12.6 roubles on February 24, since when it has dropped as low as 7.85 and was bumping along at 8.86 on July 13.

“The performance of the yuan since the start of the conflict in Ukraine is skewed to the downside, and we think that is likely to be the case in the short term,” says Naeem Aslam, chief market analyst at AvaTrade.

This is of course good news for any Russian firm buying goods or services in yuan. But it is not just Russian firms that see value in paying this way – at the end of June, Reuters reported that India's biggest cement producer was importing a cargo of Russian coal and paying using yuan.

The report quoted sources who suggested that other companies that have placed orders for Russian coal were also paying with yuan.

There has been concern in the Chinese media about the potential for wide-ranging sanctions on that country given the relatively low probability financial markets had initially ascribed to the possibility of Russia being sanctioned.

Central banks

Galvin Chia, emerging markets strategist at NatWest Markets, believes sanctions have made central banks think more about diversification and alternatives to the dollar.

Sanctions

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