Ruble tumbles to new lows as Chinese yuan gains dominance

Wednesday's session on the Moscow Stock Exchange saw a dramatic collapse of the ruble's exchange rate. The Chinese currency strengthened by 0.4961 points to 14.9572 rubles, representing an increase of 3.43% compared to Tuesday's close. This marks the strongest one-day weakening of the Russian currency against the yuan in many months.

Today's collapse fits into the long-term trend of ruble depreciation. Over the last 12 months, the CNY/RUB rate rose from 11.4061 to the current 14.9572, translating to a weakening of the Russian currency by over 21%. Particularly intense selling of the ruble occurred in the last quarter when the rate broke through successive technical resistance levels.

Notably, on Wednesday, the Russian ruble fell to its lowest level since the start of the invasion of Ukraine, surpassing the rate of 105 rubles per U.S. dollar. The sudden weakening of the currency is a result of new sanctions imposed on Gazprombank and increasing tensions between Russia and Western countries.

The current situation is a direct consequence of a fundamental change in Russian currency policy. In June 2024, the Bank of Russia announced that the yuan-to-ruble exchange rate would henceforth set the trend for other currency pairs. As the central bank reported at the time, "the share of the dollar and euro in the Russian market has been declining over the past two years as trade flows and settlement shifted to currencies of friendly countries."

The decision came in response to new sanctions introduced by the West. The central bank confirmed then that the official ruble exchange rate would remain single and market-based, only the method of its calculation would change. According to data presented by the Russian regulator, as early as May, the yuan's share in trading on the Moscow Stock Exchange exceeded 54%, making the Chinese currency dominant in stock market trading.

In a June communiqué, the Russian regulator presented a detailed analysis of the impact of sanctions on the currency market. The central bank emphasized that the new restrictions are changing the trade structure without affecting the volume of currency flows from exports or the demand for currencies needed to finance imports.

The Bank of Russia paid particular attention to the growing role of the over-the-counter market in trading Western currencies. "At that time, the regulator explained that transactions are conducted directly between banks, also involving non-resident banks from friendly countries and clients, mainly Russian exporters. Additionally, electronic trading platforms operate in the over-the-counter market, where banks can conduct transactions in dollars and euros.

Central Bank analysts pointed to favourable conditions in the energy commodity market. In May, currency sales by 29 major exporters increased by 13%, reaching approximately 21 billion Canadian dollars. These data showed that despite sanctions, the Russian economy continues to generate significant currency revenues.

The regulator emphasized that the ruble exchange rate against key currencies depends primarily on the balance of supply and demand resulting from foreign trade, not on the place where transactions are concluded. Sanctions were introduced only by the United States, but are also observed by European Union countries, which is why stock trading in euros was also suspended.

According to the Bank of Russia, the changes introduced in June represent a fundamental difference compared to the years 2022-2023, when both exports and imports experienced significant fluctuations. However, the current situation in the currency market shows that despite the regulator's optimistic assumptions, the ruble remains under strong selling pressure, and its exchange rate against the yuan continues to fall systematically.