Monetary cooperation promotes in-depth development of China-Russia economic and trade cooperation

Editor's note: The article was written by Liu Xu, deputy director of Institute for Russian, East European and Central Asian Studies at the School of International Affairs, Renmin University of China. It reflects the author's opinions and not necessarily the views of CGTN.

In order to effectively and proactively respond to the potential risks brought about by changes in the global economic landscape, China and Russia have carried out fruitful cooperation in maintaining monetary sovereignty and financial stability. Monetary cooperation has not only provided a guarantee for China-Russia economic and trade cooperation, but also promoted Chinese renminbi (RMB) internationalization and the democratization of global monetary governance, and also helped to build a stronger and more resilient comprehensive strategic partnership between China and Russia, which is of great strategic significance.

Monetary cooperation between China and Russia is mainly reflected in three aspects: RMB reserves, local currency settlement, and the improvement of bilateral financial infrastructure.

RMB has become Russia's main foreign exchange reserve currency. Back in 2015, the Central Bank of Russia announced that RMB would be included in the list of currencies used to invest in gold and foreign exchange reserves. RMB's share of Russia's sovereign wealth fund has also risen sharply. Russia has become the largest holder of RMB reserves.

The proportion of local currency settlement has increased significantly. With the deepening of financial cooperation between China and Russia, local currency settlement has become increasingly prominent in bilateral economic and trade cooperation, and RMB and Ruble have gradually replaced other currencies as the main settlement methods. According to data, as of 2024, more than 95 percent of the transactions in China-Russia trade had been settled in yuan and rubles, which greatly reduced dependence on third-party currencies. At the same time, the scale of financial cooperation between China and Russia continues to expand. According to data released by the People's Bank of China, by the end of 2024, the scale of swap funds under the Sino-Russian RMB swap agreement had reached 150 billion yuan ($20.86 billion).

China and Russia have continued to strengthen the improvement of bilateral financial infrastructure. In the two joint statements in 2023 and 2024, China and Russia emphasized the strengthening of mutually beneficial financial cooperation, the expansion of the use of local currencies in bilateral economic and trade activities, and cooperation to ensure smooth settlement between economic entities of the two countries. The two countries have been actively promoting the alignment of the Chinese Cross-border Interbank Payment Sytem and the Russian System for Transfer of Financial Messages, smoothing the settlement channels for business entities, boosting regulatory financial cooperation and encouraging bilateral investment and bond issuance.

There are three main reasons for China-Russian monetary cooperation. The first is that Russia faces brutal financial sanctions from the West. Russia has been facing economic sanctions from Western countries since 2014. These sanctions have severely limited Russia's activities in the international financial markets. Finding an alternative to the dollar and the euro for international settlements became an urgent need for Russia. As the currency of the world's second-largest economy, RMB has naturally become Russia's first choice.

Secondly, China-Russia monetary cooperation is an important measure for China to promote the internationalization of RMB and Russia's de-dollarization strategy. The dominance of the dollar in the international trading and financial system has given the United States a huge geopolitical advantage for a long time. By reducing their dependence on the dollar, China and Russia hope to increase their economic independence and international influence.

The cooperation between China and Russia in economic and trade fields has become increasingly close, and the bilateral trade volume has continued to grow. In 2023, trade between China and Russia reached a record $240.2 billion. In 2024, it maintained a slight increase, reaching $244.8 billion. 

Settlements in local currency can reduce exchange rate risks and reduce transaction costs.

However, there are still some risks to China-Russian monetary cooperation. China has not yet fully liberalized its capital and financial accounts, and there might be a risk of a shortage of RMB. The lack of liquidity in RMB may also limit investment opportunities between the two countries. The limited internationalization of the ruble has affected the deepening of monetary cooperation between the two countries. Secondary financial sanctions imposed by the West on Russia have also hampered monetary cooperation between the two countries. These risks need to be effectively addressed in the future.