Russia Eyes Negative Rates on Dollar Deposits to Aid Yuan

  • Russia’s central bank said it could impose negative interest rates on dollar and euro corporate deposits. 
  • Sanctions have already decreased the appeal of the two currencies, and negative rates would accelerate this trend, the bank said. 
  • Moscow is seeking ways to make alternative currencies, like China’s yuan, more attractive to use. 

Russia’s central bank could impose negative interest rates on certain dollar and euro deposits to encourage the use of other currencies, especially China’s yuan.

Western sanctions that froze about half of the nation’s $640 billion in gold and currency reserves — as well as talk of seizing the frozen assets — could inspire other banks in Asia and the Middle East to reevaluate their own foreign-exchange policies, the central bank said in a report, according to Reuters.

“One of the results of the imposed sanctions restrictions for the foreign exchange market was the tendency to increase the use of currencies alternative to the US dollar and the euro,” the report said, noting China’s currency in particular.

Moving to impose negative interest rates on dollar and euro deposits would ramp up the transition away from the two popular currencies, it added. 

Negative rates could hit corporate foreign exchange deposits with banks, but not retail accounts, Central Bank Deputy Governor Ksenia Ydaeva said, according to Reuters. 

Meanwhile, yuan-ruble trading has jumped more than 1,000% since Russia invaded Ukraine, an indicator that could signal China and Russia are strengthening their ties as they look to limit the influence of the US amid rising tensions.

Earlier this year, Moscow and Beijing announced a “no limits” friendship that was directly aimed at countering the sway of the US over the global economy. 

China’s trade with Russia rose 12% in March year-on-year, a faster clip than the increase in trade with the rest of the world. 

In April, Russia had said it expects trade with China to hit $200 billion by 2024, up from roughly $150 billion last year. 

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