Russia considers joint bank with China as yuan transaction costs surge

As Russia's economic pivot to China encounters significant obstacles, the cost of transactions in Chinese yuan is surging due to increased fees imposed by Russian banks.

Russia's strategic shift towards China has encountered significant challenges this year, as Chinese banks, concerned about US sanctions related to Vladimir Putin's invasion of Ukraine, have increasingly rejected transactions in renminbi (RMB). This has led Moscow to increase fees on RMB transfers, Caliber.Az reports, citing foreign media.

Since the Ukraine conflict began, Russia has seen substantial economic gains from its relationship with China, with bilateral trade surging by 26 per cent to a record $240 billion last year, and Russia becoming China's leading oil supplier. However, recent reports indicate that around 98 per cent of Chinese banks are now refusing RMB-denominated transactions.

Major Chinese banks, along with smaller local institutions, have intensified their compliance with Biden administration sanctions to avoid secondary penalties. This restriction on RMB transactions has created a liquidity crunch, prompting Russian banks to raise their fees for RMB transfers. In response, Russian commercial bank Expobank JSC sharply increased its RMB transfer fee from 1.2 per cent with a minimum charge of 350 RMB ($49) to 6.5 per cent, with the minimum fee now set at 7,500 RMB. 

Similarly, Uralsib Bank plans to hike its RMB transfer fee to 6.5 per cent and increase the minimum transfer amount to 400 RMB. SDM Bank has also raised its RMB transfer commission to 6.2 per cent. As making payments in RMB becomes increasingly challenging, the cost of transactions is rising. SDM Bank Deputy Chairman Vyacheslav Andryushkin explained that this price increase is a direct consequence of the limited market opportunities.

"For us, this translates into higher costs for transfers conducted through our banks," Andryushkin told the news outlet. Newsweek has reached out to both the Russian Finance Ministry and the Chinese Foreign Ministry for comments on the situation. Russian importers are also increasingly turning to intermediaries to navigate these financial challenges. 

One potential solution that could benefit both nations is the establishment of a joint Chinese-Russian bank. Alexey Maslov, director of Moscow State University's Institute of Asian and African Countries, noted that while the idea of a Russian-Chinese bank was discussed decades ago, it was not pursued at the time due to the efficiency of the existing system. However, the concept is now being "actively discussed by the media in China," although it remains in the early stages of development. "The proposed bank would operate with branches in both Russia and China, potentially allowing settlements to be concealed from third parties," Maslov said. 

The inclusion of the Moscow Exchange (MOEX) on the US Treasury's Office of Foreign Assets Control sanctions list has further restricted trading in dollars and dollar-denominated currency pairs, increasing Russia's reliance on the yuan for international trade and currency reserves. This dependency heightens Russia's vulnerability to China's monetary policy and exchange rate fluctuations.