In what the Kommersant business newspaper is calling the threat of "secondary sanctions," the Russian division of the Bank of China has reportedly suspended operations with all Russian lenders currently sanctioned by the United States in order to avoid being sanctioned itself.
Industry insiders told the media outlet that the Bank of China's Russia division, which specializes in facilitating yuan payments between Russia and China, is frightened of what the West might do as the situation escalates. The Russian division of the Bank of China is currently the second-largest Chinese banking subsidiary with 592.4 billion rubles ($6.7 billion) in assets as of spring 2024.
"This is not very good for the Russian market," commented an anonymous industry insider about how the decision to suspend payments with sanctioned local banks in Russia will only increase the risk of fraud as those banks shift to questionable intermediaries willing to process payments between Russian and Chinese entities.
"There will be additional costs both in time and the price of processing payments. But the most important problem is that payments go beyond the banking sector, resulting in the state having less control."
The news comes just two weeks after the U.S. expanded its original sanctions against Russia to also target any and all foreign financial institutions that continue to conduct business with any persons or entities under sanction.
(Related: Every time the West tries to punish Russia for invading Ukraine, the world shifts closer towards dedollarization.)
Trade between China and Russia skyrocketed after invasion of Ukraine
After Russian President Vladimir Putin visited Beijing back in May, an alternative payment platform was established for the continuity of business transactions between China and Russia. Reuters reported that the new payment channel involves smaller regional banks located along the Russia-China border.
This newly established workaround will allow Moscow to "fly below the U.S. sanctions radar," at least for a time as the U.S. Treasury Department will probably eventually go after it, too, as the federal agency spends a lot of time targeting smaller banks that help the Russian military.
Currently, China is Russia's most important economic partner. This has been the case ever since Moscow launched its full-scale invasion of Ukraine back in February 2022, which prompted a surge in trade between the two nations.
More than one third of all Russian exports use the Chinese yuan for settlement. This is up from just 0.4 percent before the special military operation was launched, this according to Russia's Central Bank.
The Chinese Foreign Ministry says that the U.S. is hypocritical for continuing to provide weapons to Ukraine while "shift[ing] the blame of undermining peace," adding that China-Russia trade is "inherently logical and resilient."
China continues to purchase Russian oil and natural gas, which has helped to keep Russia's globally isolated economy afloat amid all the chaos. Russia is increasingly reliant on the Chinese yuan for international transactions with Beijing's trade partners, which in turn has allowed China "to experiment in its efforts to diversify from the U.S. dollar on a larger scale," to quote one media source.
"There's that new world order starting to take shape," one commenter noted about the direction this all seems to be moving.
"Russia has the absolute right to retaliate in any way it deems necessary," wrote another. "The U.S. deep state and its cells worldwide have been undermining Russia with impunity for about 20 years now. Russia has had to work extra hard just to maintain it. It's an unholy war and totally unnecessary as the Russians have just wanted to get along with the West since the fall of communism."
How will Russia respond to all this provocation? Find out more at Chaos.news.
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