China Doubles Ruble Volatility Range... First Time Since Direct Trade in 2010

Ruble Volatility Range Increased from 5% to 10%... Ruble Still Considered Overvalued
Interpreted as a Move to Prepare for Prolonged Ukraine Crisis and Expand Yuan's Share in International Trade

[Asia Economy Beijing=Special Correspondent Jo Young-shin] China's foreign exchange authorities have doubled the daily fluctuation range of the Russian ruble. This is the first time since the start of direct ruble trading in 2010 that China has doubled the fluctuation range of the ruble. As the value of the ruble plummeted due to Russia's invasion of Ukraine, this measure appears to have been taken to minimize foreign exchange risk for domestic companies and others. It can also be interpreted as the Chinese authorities preparing for a prolonged Ukraine crisis.

[Image source=Yonhap News]

The Foreign Exchange Trading Center (CFETS) under the People's Bank of China, China's central bank, announced through the "Notice on Expanding the Price Fluctuation Range of Yuan-Ruble Spot Transactions in the Interbank Market" that starting from the 11th, the fluctuation range between the yuan and the ruble will be expanded from the previous ±5% to ±10%.

China applies a managed floating exchange rate system, which is a middle ground between fixed and floating exchange rate systems. The Chinese foreign exchange authorities currently limit the daily fluctuation range of the dollar to ±2% and other currencies to ±5%, based on the previous day's closing price.

China's economic media, Caijing, reported that the expansion of the fluctuation range was to absorb shocks caused by ruble volatility and to prevent speculation.

If the ruble's fluctuation range is kept at the previous 5%, a paradoxical phenomenon occurs where the undervalued ruble in the international market is overvalued in China. The price difference between the international foreign exchange market and the Chinese foreign exchange market creates speculative forces, causing turmoil in China's financial market.

Guan Tao, chief analyst at Zhongyin Securities in China, said, "Due to recent geopolitical issues (Russia's invasion of Ukraine), the ruble's value has plummeted and volatility has increased," adding, "The fluctuation range was expanded to minimize shocks caused by exchange rate volatility." He explained that if the spread between the dollar-ruble exchange rate and the yuan-ruble exchange rate is not minimized, the yuan could be exposed to risks.

Tu Yonghong, deputy director of the Institute of International Monetary Research at Renmin University, said, "Due to the decline in the ruble's value, Chinese companies trading with Russia are exposed to foreign exchange risks," and predicted, "The expanded fluctuation range will allow Chinese companies to better respond to exchange rate changes."

Some voices express dissatisfaction, saying that China is indirectly supporting Russia in the financial market. There are calls to further expand the ruble's fluctuation range to align with the global financial market.

[Image source=Yonhap News]

Meanwhile, the Global Times reported that Russia's VTB Bank is selling yuan-denominated deposit products offering an annual interest rate of 8%. VTB is a bank excluded from the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

The Global Times stated that the sale of high-interest yuan deposit products by Russian banks is a measure to attract yuan funds and that the value and transaction volume of the yuan will expand.

Dong Dengxin, director of the Financial Securities Research Institute at Wuhan University of Science and Technology, said, "Raising the interest rate on yuan deposits is a last resort amid financial sanctions from the US and other Western countries, but it will ultimately promote the internationalization of the yuan," and predicted, "The proportion of yuan in Russia's foreign exchange reserves will increase further."

Chen Jia, a researcher at the Institute of International Monetary Research at Renmin University, said, "A stable exchange rate of the yuan will provide good value to the Russian financial market," adding, "Above all, it will help stabilize the China-Russia financial system and trade transactions."

This content was produced with the assistance of AI translation services.