Russia accelerated its decoupling from the US dollar and euro this week with the nation’s two largest lenders announcing ambitions in yuan-denominated lending.

On Tuesday, Russia’s largest bank Sberbank said it had started to lend in the Chinese yuan, amid ongoing efforts by Moscow to build its financial infrastructure in countries without existing sanctions. Sberbank first deputy chairman Alexander Vedyakhin spoke at the Eastern Economic Forum and said demand observed thus far has been «quite large», according to a «Reuters» report. 

One day later, the country’s second-largest bank VTB said it would begin yuan-denominated lending, alongside other other non-Western currencies, later this year. VTB chief executive Andrei Kostin spoke at the same four-day forum in Vladivostok, according to a separate «Reuters» report, announcing plans to issue corporate loans to «friendly» countries including a potential project denominated in yuan and valued at 450 billion roubles ($7.4 billion). 

Strategic Win-Win

In the long-term, some of the strategic gains are apparent. Expansion of lending in the Chinese currency will contribute to Beijing’s ambitions to internationalize the yuan. For Moscow, this is part of its broader efforts to build a financial infrastructure for Russia without Western interference.  

There are potential short-term wins too. In the midst of the conflict in Ukraine, Moscow will be able to support itself and its partners through trade – most notably energy exports – without taking on sanctions risk. And greater use of the Chinese currency could help Beijing’s recent attempts to slow down the yuan’s weakening against the dollar. 

Year-to-date, the yuan has fallen more than 9 percent against the dollar to reach a two-year low. Earlier this month, China’s central bank cut its foreign currency reserve ratio earlier for the second time this year. 

Payments Too

Recent progress in the development of Russia’s alternative financial system has not been limited to lending with payments also making new strides.

According to Kostin, VTB also became the first bank in Russia to make money transfers to China via the yuan outside the SWIFT messaging network. Separately, there is growing support to legalize crypto payments, including from Russia’s central bank which has reportedly admitted that the use of digital currencies in cross-border settlements is inevitable. 

«The new reality is leading to a massive rejection of the use of the dollar and the euro in international payments,» VTB's Kostin said.