China to double yuan's trading band with ruble to 10% in first-of-its-kind move
Published: Mar 10, 2022 08:58 PM


The China Foreign Exchange Trade System (CFETS) announced on Thursday the decision to double the Chinese yuan's trading band with the Russian ruble in the inter-bank foreign exchange market in the latest economic measure to respond to the development of market's needs.

Starting Friday, the rise or fall of the Chinese yuan's daily spot trading price against Russia's ruble in the interbank forex market will be capped at 10 percent, doubling the current band, according to the statement by CFETS on Thursday.

The wider trading band could help prevent currency arbitrage in the wake of the ruble's recent plunge and facilitate trade settlements, analysts said.

The revision is a first-of-its-kind move that widens the yuan's trading band with a foreign currency to 10 percent, China Business Network (CBN) reported on Thursday.

Currently, the yuan's daily rise or fall against the US dollar is capped at 2 percent while its fluctuation against other currencies are subject to 5 percent in either direction.

Guan Tao, chief global economist at BOC International (China) Co mentioned in CBN's report that the conversion of the yuan into rubles falls under an exchange rate, while trading on rubles against the dollar is done with another rate, resulting in the yuan-ruble cross rate based on the previous quotes. 

With the ruble's value currently subject to wild swings against the dollar, if the yuan's trading band with the ruble cannot be widened, the ruble-dollar fluctuations might not be offset sufficiently, Guan explained, speaking of the necessity of the move.

This came in tandem with the announcement on Wednesday by Russia's VTB Bank that it will launch yuan savings services, with an annual interest rate of up to 8 percent, with durations ranging from three to six months, Bloomberg reported. This measure came as a way to counter strict sanctions from the US and its allies, which seek to isolate Russia from the US dollar dominated interbank communication system SWIFT, according to media reports.

"In light of the rising dollar and euro exchange rates, many clients are showing an interest toward investing in other currencies and the yuan is one of the most affordable and promising options for investing funds,"  VTB Bank said in a statement.

The move to raise interest rates on yuan deposits will greatly attract Russian citizens, as well as Chinese nationals living and working in Russia. It will be conducive to improving the share of the yuan in Russia's foreign currency reserves, Dong Dengxin, Director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times on Thursday.

"Although the move to raise yuan deposit interest rates is an alternative option by Russia amid the strict financial and monetary sanctions imposed by the US and its allies, it underlines the solid status of the yuan as an international trading currency and will facilitate its internationalization," Dong said.

The yuan deposit service offered by VTB Bank not only aims at attracting account holders at this special time but will also have a profound impact on the global monetary system as an attempt to explore alternatives to the US dollar-centered system, Chen Jia, a research fellow with the International Monetary Institute (IMI) of the Renmin University of China, told the Global Times on Thursday.

"Faced with the escalating US-led squeeze, the stable rate of the yuan offers good value for Russia's financial market to help stabilize its financial system and foreign trade, especially with China," Chen said.

The move will be the most profitable alternative to deposits in other foreign currencies and  will allow savers  diversify their investment portfolio, VTB Bank said.

Customers can open yuan accounts  online with a minimum deposit of 100 yuan ($15.82), or a minimum deposit of 500 yuan ($79.10) in person at any of its branches.

The new service has not started in the Chinese mainland branches of the VTB Bank, the National Business Daily reported.