Vladimir Putin said that he expects the number of transactions settled in renminbi and roubles between Russia and China to grow rapidly, buoyed by swelling trade between the two countries.
So far, the level of cross-border settlement in national currencies has been “somewhat low” said Putin but that is set to change, the Russian president added during a packed conference in Moscow on Wednesday.
Both Russia and China have been pushing for the wider international use of their national currencies partly to reduce their reliance on the US dollar for trading. Russia is also hoping to attract more investment from China and is keen to build the financial infrastructure that will facilitate trade.
Trade between Russia and China hit a record $107 billion in 2018, up from $84 billion in 2017, according to China’s General Administration of Customs.
“The trade between China and Russia is deepening but financial cooperation is lagging,” said Yanzhi Wang, president of China’s Silk Road Fund.
Settlement of trade in renminbi would reduce foreign exchange risk and lower transaction costs for the fund said Wang, who was also speaking at the conference organised by Russian investment bank VTB Capital.
China set up the fund in 2014 to foster investment in counties included in its development strategy, the Belt and Road Initiative. The Silk Road Fund has inked more than 30 deals worth more than $13 billion with Russia its largest destination for investment.
The Silk Road Fund aims to boost the value of renminbi circulating in Russia via equity and loans. It sees Russian companies in Russia receiving investment in renminbi then spending the Chinese currency on buying goods and services from China or exchanging it into roubles at local banks. Those banks could either invest it in renminbi-denominated financial products, lend it to companies or exchange it for roubles with the central bank.
“If it works, more RMB capital could flow into Russia,” said Wang.
The Silk Road Fund has already invested in the Yamal natural gas project and Russian gas group Sibur.
The fund also plans to expand its investment outside of energy into infrastructure, agriculture and transport.
Earlier this year it signed a deal to establish Maritime Arctic Transport LLC, to manage an ice-breaking tanker fleet of Arctic ice-class vessels, to transport liquid natural gas.
Wang noted that China imported $137 billion agricultural products last year but only 2% came from Russia. Food for thought as Wang ponders his next investment in Russia.
