Earlier this evening China’s State Administration of Foreign Exchange’s (SAFE) Wang Yungui noted “the impact of the Russian Ruble depreciation was unclear yet, and, as Bloomberg reported, “SAFE is closely watching Ruble’s depreciation and encouraging companies to hedge Ruble risks.” His comments also echoed the ongoing FXFX reform agenda aimed at increasing Yuan flexibility which The South China Morning Post then hinted in a story entitled “Russia may seek China help to deal with crisis,” which which noted that Russia could fall back on its 150 billion yuan ($24 billion) currency swap agreement with China if the ruble continues to plunge, that was signed in October. Furthermore, two bankers close to the PBOC reportedly said the swap-line was meant to reduce the role of the US dollar if China and Russia need to help each other overcome a liquidity squeeze.
As Bloomberg reported, earlier in the evening, China’s Wang Yungui noted
- CHINA IS CLOSELY WATCHING RUBLE’S DEPRECIATION: SAFE’S WANG
- CHINA ENCOURAGES COS. TO HEDGE RUBLE RISKS, SAFE’S WANG SAYS
- REAL IMPACT OF RUBLE DEPRECIATION UNCLEAR YET, SAFE’S WANG SAYS
Adding that China plans sweeping reforms to promote FX flexibility.
Russia could fall back on its 150 billion yuan (HK$189.8 billion) currency swap agreement with China if the rouble continues to plunge.
If the swap deal is activated for this purpose, it would mark the first time China is called upon to use its currency to bail out another currency in crisis. The deal was signed by the two central banks in October, when Premier Li Keqiang visited Russia.
The swap allows the central banks to directly buy yuan and rouble in the two currencies, rather than via the US dollar.
China has currency swap deals with more than 20 monetary authorities around the world. Swaps are generally used to settle trade.
“The yuan-rouble swap deal was not just a financial matter,” said Wang Feng, chairman of Shanghai-based private equity group Yinshu Capital. “It has political implications as it is a sign of mutual trust.”
To be sure, some such as Bloomberg, are skeptical that the unprecedented pivot by Russia toward China as it shuns the west, will merely harm the Kremlin. Others, however, wonder: who will be left standing: Europe, with its chronic deficit of energy and reliance on Russia; or Russia, a country overflowing with natural resources, whose economy is currently underoing a dramatic and painful shift, as it scrambles to dissolve all linkages to the Petrodollar and face the Gas-O-Yuan?
Full article: China Prepares To Bailout Russia (Zero Hedge)