Russian coal and oil are paid for in yuan as the two countries maintains their energy trade despite growing international pressure over Russian invasion of Ukraine.
Chinese companies are using local currency to buy Russian coal in March and the first cargoes will arrive this month, according to Chinese consultancy Fenwei Energy Information Service Co. said.
The move will market the first commodity shipments paid for in yuan since the U.S. and Europe penalized Russia and cut several of its banks off from the international financial system, according to traders.
Russian crude sellers have offered to give buyer’s in Asia the largest economic flexibility by allowing them to pay in yuan. The first cargoes of the ESPO grade bought with the Chinese currency will be delivered to independent refiners in May, according to Bloomberg citing people familiar with the purchases.
Separately, Russian seller are also offering rupee-ruble payments to Indian oil buyers, while Saudi Arabia is in talks with Beijing to price some of its crude in yuan.
According to the Bank for International Settlements, U.S. currency was used for 88% of foreign-exchange transactions in 2019 compare to 4.9% in yuan. It’s is yet unlikely yuan will pose as a threat to dollar’s dominance.
Consultancy firm Fenwei said, both steel-making and power-plant coal are being paid for in yuan. They added these deals are traditionally done in dollars, but many Chinese buyers temporarily halted purchases after the U.S. and Europe cut off Russian lenders from the SWIFT inter-bank messaging system.
The China Coal Transport and Distribution Association said last month, although China is interested to snap more Russian supplies but financing and logistics will pose a daunting challenge.
