Chinese Banks Fleeing Moscow Exchange

Due to US sanctions.

Major players in exchange trading in the Chinese yuan — Chinese banks that continue to work with Russia — are leaving the Moscow Exchange, which has fallen under US sanctions.

According to Kommersant, citing exchange statistics, in the last two weeks, a noticeable reduction in the average transaction size was recorded in trading in the Chinese currency: compared to May, this figure fell by 14%, to 1.89 million rubles — the lowest level since February 2023.

At the same time, the turnover of the over-the-counter yuan market increased sharply: in June, transactions worth 1.98 trillion rubles were concluded there — 27% more than in May. At the same time, intraday turnover broke records three times, exceeding the 200 billion rubles per day mark.

This means that the yuan flows that flow into Russia for oil sold to China are leaving the exchange market for the over-the-counter market following the dollar and the euro, trading in which was stopped on June 13.

Market participants from China — the main suppliers of yuan liquidity — bear the risk of falling under secondary US sanctions, since the Moscow Exchange is included in the SDN list of the US Treasury Department with a ban on any operations, explains Sovcombank analyst Mikhail Vasiliev.

“Some players anticipate difficulties in trading the Chinese currency on the exchange, and this uncertainty may force them to transfer part of their trading activity to the over-the-counter market,” notes Dmitry Lesnov, head of the client service development department at FG Finam.

At the end of June, the brokerage company Sinara and Sberbank CIB, an investment subsidiary of the largest Russian state bank, reported problems with the withdrawal of yuan from the Moscow Exchange. Additional complications in operations with the Chinese currency may be caused by Bank of China's refusal to stop working with Russian banks that have fallen under sanctions, analysts at Sber CIB wrote.

In a risky scenario, yuan trading may completely switch to the over-the-counter market, Vasiliev does not rule out: “A lot will depend on the willingness of Chinese banks to work on the Russian exchange.”

The Central Bank is already preparing for a scenario in which exchange trading in the yuan will have to be stopped, just as happened with the dollar and the euro. Most likely, Chinese banks will gradually wind down operations with the Moscow Exchange and the National Clearing Center, which has also fallen under sanctions, a source close to the Central Bank told Bloomberg.

According to him, this may happen under pressure from the United States, which has blacklisted the exchange, the National Clearing Center (NCC), and the National Settlement Depository (NSD), putting an end to the era of free trading in the main world currencies in Moscow that lasted more than 30 years.

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