China’s Economic Gambit Could Nuke Putin’s Dollar Ploy

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Economists call it the “nuclear” option but speculation that China might devalue its currency the yuan (RMB) could cause fallout for Russia as President Vladimir Putin pushes to move the global economy away from its reliance on the U.S. dollar.

Putin told the BRICS (Brazil, Russia, India, China, South Africa) summit last August that a drop in the importance of the U.S. dollar was “irreversible” and Moscow has vowed to “de-dollarize” its economy, shunning currencies from “unfriendly” countries that have condemned his aggression in Ukraine.

But a complicating factor could be the possible devaluation of the yuan, as China faces low consumer confidence, a property sector crunch and indebted local governments, as well as five months of contraction in manufacturing activity recently.

A depreciation of the yuan would boost China’s exports and give the People’s Bank of China wiggle room to cut interest rates, although it could also destabilize the global currency market. It could also undermine the yuan’s appeal relative to the greenback, whose prominence Russia wants to overhaul.

Russia's Economy Might Hit Historic Low
Speculation that China might devalue its currency could cause fallout for Russian President Vladimir Putin.

Photo-illustration by Newsweek/Getty, Alexander NEMENOV / AFP,  Contributor, Kirill KUDRYAVTSEV 

“Adjusting exchange rates is not an easy or simple way to de-dollarize the world’s economy,” Jay Zagorsky, associate professor in markets, public policy and law at Boston University’s Questrom School of Business, told Newsweek.

“Spurring exports by devaluing a currency does not make other countries suddenly want to use the devaluing currency more,” he said. “If anything, when financial traders are hit by a surprise devaluation, they want to use that currency less in future trades. Using it less helps them avoid further risk from exchange rate changes.”

In 2023, China sold about $130 billion worth of exports to Russia and imported about $110 billion worth from Russia. However, Zagorsky noted that the SWIFT (Society for Worldwide Interbank Financial Telecommunication) banking system, a measure of the dollarization of the world economy, handles about $150 trillion a year.

This means that even though Putin has boasted about greater trade ties with China, this has not made a big difference to the amount of non-U.S. currency flowing through the global economy.

“Russia needs to de-dollarize no matter what, but for other countries with choices, say Brazil, a weak RMB will discourage them from holding or demanding RMB,” Alicia García-Herrero, the chief economist for Asia Pacific at Natixis, told Newsweek.

Russia and China exchange rates
The Chinese Yuan/Ruble exchange rate is seen on a screen in Moscow on January 10, 2023. Beijing has a “no limits” partnership with Russia, which last year overtook Saudi Arabia as China’s largest petroleum supplier.


“China’s devaluing will help Russia import more from China. I don’t think it is a problem for Russia but it is a problem for those competing with China in other markets, including Southeast Asia,” she added.

China’s central bank has boosted its reserves of gold for the 17th straight month, which is a move likely intended to diversify foreign exchange reserves away from the dollar and other Western currencies.

Russia has managed to redirect its exports of raw materials from the West where they are subject to sanctions, to China. India and Turkey have also increased their purchases of Russian oil.

Beijing has a “no limits” partnership with Russia, which last year overtook Saudi Arabia as China’s largest petroleum supplier, following sanctions slapped on Moscow for Putin’s attack on Ukraine.

The swift accumulation of petroleum, as well as gold, has spurred the speculation that China was looking to create a buffer against the possible negative effects of an imminent devaluation—which it last did in 2015—such as increased import costs and inflation.

The Russian Central Bank continues to push for greater independence from Western financial systems and currencies, promoting “friendly” currencies, such as the yuan, by increasing their share of foreign exchange reserves but there is a long way to go.

“The de-dollarization plan initiated by the BRICS is in the early stages of implementation,” Grzegorz Dróżdż, market analyst at told Newsweek. “India, for example, does not want to settle in Chinese yuan, and the plan promoted by Russia and China to settle in local currencies of developing countries raises costs and risks for central bank reserves.”

“The strengthening of the yuan’s position is supported by the development of the financial infrastructure that enables the circulation of this currency in Russia,” said Dróżdż. “This has provided the Russian yuan market with liquidity, facilitating the development of local transactions and investments in this currency.”