Chinese banks flee Moscow Exchange after US sanctions

Major players in trading in the Chinese yuan – Chinese banks continuing to work with Russia – are leaving the Moscow Exchange, which has been hit by US sanctions.

Source: Russian online newspaper The Moscow Times, citing exchange statistics

Details: The newspaper reported that trading in the Chinese currency has seen a significant decline in the average transaction size over the past two weeks: compared to May, this figure fell by 14% to RUB 1.89 million (roughly US$21,600), the lowest level since February 2023.

Meanwhile, the turnover of the over-the-counter (OTC) yuan market surged as deals worth RUB 1.98 trillion (roughly US$22.6 billion) were concluded in June, up 27% from May. At the same time, intraday turnover broke records three times, exceeding the RUB 200 billion (roughly US$2.27 billion) a day mark.

This indicates that the yuan flows directed into Russia for oil sales to China are shifting from the exchange market to the OTC market. This follows the suspension of trading in US dollars and euros on 13 June.

Market participants from China – the main suppliers of yuan liquidity – are at risk of being hit by secondary US sanctions, as the Moscow Exchange has been included in the US Treasury's SDN (Specially Designated Nationals) list, which bans any transactions, explains Mikhail Vasiliev, an analyst at Russia's Sovcombank.

Russia's Central Bank is already gearing up for a scenario in which yuan trading will have to be halted, just as it did with the dollar and euro. A source close to the Central Bank told Bloomberg that Chinese banks will most likely gradually wind down operations with the Moscow Exchange and the National Clearing Centre, which has also been sanctioned.

Background: 

• In June, the US significantly expanded its sanctions list against Russia to include hundreds of new items, including the Moscow Exchange, which was forced to announce that it would cease trading in US dollars and euros on 13 June.
• The impact of the sanctions resulted in a surge in the cash rate for purchasing US dollars and euros at many Moscow bank branches. As of 21:30 on 12 June, the maximum order values were RUB 120 per US dollar and RUB 125 per euro.
• At one point, some banks' US dollar exchange rate reached RUB 200.
• According to Russia's Central Bank data, the official exchange rate was RUB 89.02 for the dollar and RUB 95.7 for the euro.
• On 13 June, shares on the Moscow Exchange opened down by up to 15% amid the introduction of US sanctions.

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