U.S.-China Relations
NextFin News - Russia has effectively abandoned its campaign to replace the U.S. dollar with China's yuan as the settlement currency for its exports, after American secondary sanctions turned the yuan from a lifeline into a liability. The yuan's share of payments for Russian exports has halved this year to 22%, down from its peak in mid-2024 when Washington widened secondary sanctions, according to the latest data from the Russian central bank. In trade with Asia, Moscow now takes rubles for 69% of its exports — a retreat into its own non-convertible currency that no other country can spend.
The reversal is a stark lesson for the rest of the de-dollarization movement: sanctions did not push Russia into the arms of a rival currency bloc. They pushed it back into a currency that stops at its own border.
The Yuan Mirage: How a Lifeline Became a Trap
At the height of the pivot, the yuan looked like the answer to Russia's sanctions problem. Before the 2022 invasion of Ukraine, settlements in yuan accounted for less than 2% of Russia's total trade. By January 2024, that share had surged to nearly 40%. On the Moscow Exchange, the yuan's proportion of currency trading climbed from 3% in 2022 to 54% by May 2024, and after the exchange itself was sanctioned in June 2024, yuan transactions reached 99.8% of all foreign-currency trading on the bourse.
The inflection point came when the U.S. Treasury signaled it would impose secondary sanctions on third-country entities assisting Russia's military-industrial base. Growth in yuan usage halted. Then it reversed. Chinese banks — the plumbing through which every yuan payment must pass — began refusing Russian business. The Russian division of the Bank of China stopped processing yuan payments with U.S.-sanctioned Russian banks in June. The Industrial and Commercial Bank of China, China CITIC Bank, and most other large lenders followed. By July, roughly 80% of yuan-denominated transfers from Russian firms were being bounced back, in some cases after stalls of up to six months.
The result is visible in the central bank's own numbers. The yuan share of export payments fell from its mid-2024 peak by half to 22% this year. And in the corridor that matters most — Asia — 69% of Russian export revenue now arrives in rubles. That is not a currency substitution. It is a barter arrangement with accounting.
Why the Yuan Could Never Be a Sanctions Refuge
The failure was structural, not cyclical. A currency that can shelter an economy from sanctions needs three things: convertibility, deep and open capital markets, and a legal system that foreign counterparties trust to leave their money untouched. The yuan has none of them.
China maintains capital controls that keep the renminbi from trading freely in foreign-exchange markets. Its financial system remains deeply integrated with Western correspondent banking — which is precisely why Chinese banks folded under secondary-sanctions pressure rather than absorb the risk of losing dollar access. A bank in Beijing that values its U.S. dollar clearing relationships more than a handful of Russian commodity accounts will always choose the dollar. That is not a policy preference; it is arithmetic.
Russia's own experience proves the point. The Moscow Exchange yuan liquidity crisis showed how thin the market really is. Overnight yuan borrowing rates on the exchange surged to 44% in March 2026, after hovering near zero for most of the prior year. At the peak of the squeeze, the one-day yuan repo rate cleared at 212% — a level the exchange had never seen. When the U.S. sanctioned the National Clearing Center in July, Chinese banks stopped servicing payments for the exchange and the clearing house, and Russian exporters and the central bank lost the ability to withdraw yuan balances held offshore.
"If yuan trading on Moscow Exchange is really cancelled, then there will be no exchange benchmark for the rouble. Yuan quotes will be formed on the results of trades on the interbank market, which is absolutely non-transparent, manipulable and volatile."
Alexander Potavin, an analyst at Finam, made that assessment as the Finance Ministry's decision to halt yuan sales from the National Wealth Fund cut roughly $3 billion a month from the market. It captures the core problem: without an open, liquid, rules-based market, the yuan cannot perform the most basic function of a settlement currency — providing a trusted price.
The Anatomy of the Collapse: From 40% to 22%
The arc of Russia's yuan pivot reads like a case study in forced financial engineering. Moscow's de-dollarization did not begin in 2022; it started after the 2014 annexation of Crimea, when the central bank began cutting dollar holdings and the finance ministry pushed to drain "toxic" currencies from the National Wealth Fund. By 2018, the share of currencies from countries Russia deemed "unfriendly" had already begun its descent. The 2022 invasion and the subsequent freezing of roughly half of Russia's $640 billion in foreign-currency reserves accelerated the process into a sprint: the share of "unfriendly" currencies in Russian exports plummeted from 87% to 18%, and in imports from 67% to 18%.
But the mechanics of the yuan system contained the seeds of their own failure. Every cross-border yuan payment must clear through a Chinese bank that maintains correspondent relationships in the West. When Washington threatened those relationships, the entire chain seized. The problem was not a shortage of willing Russian counterparties; it was that the yuan's clearing infrastructure is owned and policed by a jurisdiction that still values access to the dollar more than it values the Russia trade. The 22% figure is not a market preference. It is a compliance outcome.
The ruble fallback compounds the dysfunction. Rubles earned by Chinese exporters cannot be converted into anything useful outside Russia's closed capital account, so they pile up in accounts that Beijing has no incentive to spend. Russian importers, meanwhile, must source yuan to pay for the machinery, vehicles, and electronics that now make up the bulk of China's exports to Russia — machinery and mechanical appliances at roughly 24% of the trade value, vehicles at 16%, electrical equipment at 15%. The currency mismatch means Russia is structurally short the very currency its largest supplier demands.
The Real Outcome: A Ruble Trap, Not a Currency Bloc
The irony of Russia's de-dollarization is that its most successful frontier is also its most damning. Bilateral trade with China stabilized at $245 billion in 2024, more than double the 2020 level, and the first nine months of 2026 saw trade rise 30.6% year-on-year to $214.3 billion. Economists project a full-year total of $270 billion to $275 billion. At the 11th Russia-China Financial Dialogue, Russian Finance Minister Anton Siluanov confirmed that 99.1% of commercial payments between the two economies are now conducted in rubles and yuan, with the dollar all but gone from the corridor.
On paper, that looks like a de-dollarization victory. In practice, it is a buyer's market with a knife at the seller's throat. Because Russia cannot spend yuan freely and cannot get it out of China without triggering compliance alarms, Beijing has extracted a persistent discount. China's buyer's discount on Russian crude peaked at roughly 18% immediately after the February 2022 invasion and has eased to approximately 5%; between April 2022 and February 2026, the average discount was 7.7%, saving Chinese refiners an estimated $18.3 billion. Russia redirected its oil to Asia, but it did so at a price set in Beijing, not Moscow.
That discount is the hidden tax of de-dollarization. It is how a sanctions-evading payment system quietly transfers wealth from the sanctioned seller to the compliant buyer. The discount widened when Western sanctions tightened and narrowed only when global prices rose or enforcement slackened — a direct measure of how much Russia pays for the privilege of operating outside the dollar system. A corridor that grows in volume while the seller's pricing power shrinks is not a success; it is a dependency that has been priced.
The Second-Order Warning for the Rest of the De-Dollarizers
The lesson extends far beyond Russia. The BRICS bloc, representing roughly 39% of global GDP measured by purchasing-power parity, has been exploring local-currency settlement and alternative payment infrastructure. Gulf producers and other commodity exporters have toyed with yuan-denominated oil sales. Russia's experience is the field test, and the result is unambiguous: the yuan works as a settlement currency only when China wants it to work, and only for counterparties China is willing to absorb risk for.
The data on the yuan's global role supports the skeptical read. The renminbi's share of payments on the SWIFT network peaked in late 2024 before falling back to 2.75%, and volumes on SWIFT declined 24% from the July 2024 peak as of January 2026. The yuan's share of global foreign-exchange reserves stood at just 2.18% at the end of 2024, according to IMF data — little changed from years past, and down to 2.12% by the first quarter of 2025. A currency that cannot grow its global footprint while its largest geopolitical client is being forced to use it is not failing because of bad timing. It is failing because of design.
The second-order effect is already visible in the behavior of the very countries de-dollarization advocates hope to recruit. Secondary sanctions on Russia's two largest oil companies, Rosneft and Lukoil, announced by the U.S. Treasury on October 22, 2025, prompted China's largest state-owned oil companies to immediately suspend purchases. The same Treasury action warned that foreign financial institutions facilitating significant transactions for designated persons risk losing their U.S. correspondent accounts. The message to India, Turkey, and the Gulf states is plain: the dollar's replacement is not the yuan. It is a currency whose banks will hang up the phone the moment Washington calls.
This is why the dollar's dominance is more durable than the de-dollarization narrative assumes. The dollar is not dominant because the world loves American policy. It is dominant because no alternative offers the combination of depth, convertibility, and legal predictability that global trade requires. Network effects reinforce the advantage: the more trade is invoiced in dollars, the deeper the hedging markets become, and the deeper the hedging markets, the more trade is invoiced in dollars. Russia did not leave the dollar system by choice; it was expelled. And the door it ran through turned out to be a wall.
Counter-Thesis: The Russia-China Corridor as a Success Story
The strongest case against this reading is that the Russia-China corridor is actually the world's most advanced proof-of-concept for durable non-dollar trade. Nearly all commercial payments between the two economies now settle in national currencies across a trade corridor approaching $280 billion annually, and the relationship has survived years of escalating sanctions. Proponents argue the yuan's declining share of Russian export receipts is not a collapse but a maturation — a shift from a yuan-heavy phase to a stable ruble-yuan equilibrium that functions without dollar plumbing.
That argument confuses volume with functionality. A payment system that settles 99.1% of transactions is impressive only if the currencies involved can actually be used. Rubles cannot leave Russia's financial system in any meaningful quantity, and yuan held by Russian entities is subject to Chinese capital controls and the compliance decisions of Chinese banks. The 22% yuan share of export payments — and falling — shows which leg of the arrangement is doing the real work: the buyer's currency, on the buyer's terms.
Nor is the arrangement stable. The discount Russia accepts on its energy exports is a function of its desperation, not a negotiated equilibrium. Should enforcement ease, the discount narrows; should it tighten, the discount widens and the yuan share falls further. A system whose terms move against the weaker party with every tightening of sanctions is not an alternative monetary order. It is a bilateral dependency with a variable rate.
What to Watch: The Signals That Would Prove This Wrong
The structural verdict rests on two observable conditions. First, the yuan share of Russian export payments must remain depressed — a sustained recovery above 35% would indicate that Chinese banks have found a way to process Russian business without U.S. enforcement blowback. Second, Chinese banks must resume normal yuan processing for sanctioned Russian entities without new U.S. penalties; if they do, the secondary-sanctions mechanism is weaker than it appears.
Short term, watch the yuan liquidity premium on the Moscow Exchange. If overnight yuan borrowing rates normalize toward single digits and stay there, the acute squeeze is easing. Medium term, watch whether China's state oil buyers return to Russian crude at pre-sanction volumes after the Rosneft-Lukoil designations — a full resumption would signal that Beijing is willing to absorb secondary-sanctions risk. Long term, watch the renminbi's share of global payments and reserves: a sustained rise well above 3% of SWIFT payments and 3% of global reserves while capital controls remain would weaken the structural critique.
The base case is that Russia's currency architecture hardens into a permanent ruble-yuan bilateralism with deteriorating terms of trade for Moscow. The upside case for de-dollarizers is that China gradually liberalizes the yuan enough to make it a genuine refuge — but that would require Beijing to surrender the capital controls it views as essential to financial stability. The downside case is that further U.S. enforcement pushes the yuan share of Russian payments toward zero, leaving the ruble as the only option for a country that prints too much of it.
Russia set out to build a sanctions-proof alternative to the dollar and ended up proving why the dollar has no alternative: a currency that cannot be converted, cannot be trusted, and cannot be defended against its own government is not a reserve currency. It is a promise that expires at the border.
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