The People’s Bank of China has a multi-billion dollar currency swap with Russia’s central bank, allowing the two nations to provide liquidity to businesses so they can continue trading. China has also signed Russian banks onto its homegrown payments settlement system, seen as an alternative to the SWIFT messaging system, which many Russian lenders will be banned from using.
It’s unclear whether that support will be forthcoming though, with the PBOC yet to disclose how it will respond to the Russia sanctions. It didn’t reply to faxed questions on Monday for more detail, including on the status of Russian foreign exchange reserves or the currency swap line. China is treading cautiously for now, with two major state-owned banks restricting financing for purchasing Russian commodities.
The biggest help to Russia could come from the yuan assets held in foreign exchange reserves. About 13% of Russia’s reserves, or an estimated $77 billion, were in Chinese assets as of June 2021, the most recent figures from the Bank of Russia. Selling off those holdings would give Russia much-needed liquidity.
“The Chinese assets and yuan in Russian foreign reserves can be an effective tool for Russia to counter the impact of U.S. and European sanctions,” said Yu Lingqu, vice director of the center for financial studies at China Development Institute, a state-backed think tank in Shenzhen.
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