Russian President Vladimir Putin reiterated on Friday that he wants to strengthen ties with China, and avoid using the dollar for bilateral trade. Data from China's central bank suggest that companies are already starting to shun the U.S. currency.
In an interview with the Russian news agency Tass, Mr. Putin said that oil giant Rosneft is working with a major Chinese corporation to receive renminbi as a payments for a significant flow of oil.
"We're moving away from the diktat of the market that denominates all the commercial oil flows in U.S. dollars," Mr. Putin said.
Russian companies are increasingly shifting to direct renminbi-ruble trading to settle their imports and exports with Asia.
Turnover in direct transactions in the two currencies soared to $1.2 billion over the course of October, from $307 million in September and as low as $52 million in July, according to data available on the website of the China Foreign Exchange Trading System, the trading division of China's central bank.
"Volumes are picking up as both countries aren't against using their own currencies instead of the dollar for mutual transactions. I expect the turnover to grow," said Evgeny Gavrilenkov, a currency strategist at Sberbank.
The Moscow Exchange reported a record daily turnover of 1.5 billion yuan ($245 million) against the ruble on October 16.
"The Moscow Exchange cooperates with China's largest banks to promote the use of the two national currencies in settlement between Russian and Chinese companies," a spokesperson at the exchange said.
Ruble-yuan trading was launched by the Moscow Exchange in 2010 but failed to gain significant interest from Russian companies until October, just after the U.S. and Europe widened their sanctions against the country.
To further strengthen cooperation, the exchange signed an agreement with the Bank of China in October and is currently negotiating with Chinese authorities the launch of new services to investors on the Chinese and Russian markets.
"Sanctions on Russia will undoubtedly encourage ties with other countries, particularly China," said Andy Seaman, fund manager at Stratton Street Capital LLP which manages a renminbi bond fund.
"The Chinese currency is already likely to be the third most actively traded currency in the world by the end of 2015 and greater trade links between Russia and China can only accelerate the internationalization of the renminbi," he added.
Still, despite the recent rapid growth, direct trading volumes between the two currencies remain tiny compared with the overall size of the market.
Direct sterling-renminbi trading, which started in June 2014 had a turnover of about $2 billion in October. Each day, total average currency-trading flows through the Moscow Stock Exchange stand at around $23 billion.
"Russian corporates are very interested in denominating in renminbi in the future. But the significance of direct trading volumes offshore remains limited until [there is] more access to onshore Chinese markets, " said Jinny Yan, director of renminbi solutions at Standard Chartered.
Write to Chiara Albanese at chiara.albanese@wsj.com
Read more: http://www.nasdaq.com/article/russia-shuns-dollar-as-putin-strengthens-ties-with-china-20141114-00417#ixzz3JJ3jDnBb
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