Interview with Vadim Timokhin, Head of Cooperation with Asian Financial Institutions of Moscow Credit Bank
Vadim Timokhin, Head of Cooperation with Asian Financial Institutions at Credit Bank of Moscow (CBM), spoke about how the pandemic affected the economic relations between Russia and China, and whether it makes sense to invest in yuan-denominated instruments.
«The Chinese yuan has been the global reserve currency for quite a long time, included in the International Monetary Fund basket. And settlements in national currencies are steadily growing, especially in trade between Russia and China. We are seeing unprecedented growth this year when the US dollar fell below 50% in the settlement basket between the two countries in the first half of the year. As for the currency itself, the yuan has traditionally been stable because it is controlled. We understand that there are two currencies: the offshore yuan, which is traded all over the world, and the yuan, which is traded in the mainland. But it can be seen that in recent years the difference between these two currencies in relation to the US dollar is minimal.
I believe that the yuan is a stable currency. Not everyone will agree with me as it is a highly regulated currency. But at the same time, the yuan instruments are quite interesting at the moment, since the yuan is a reserve currency and there is quite a lot of it in the world. You can find an interesting yield of yuan instruments – in mainland China, the yield can go up to 9% per annum on bonds of corporations with a rating of “AA +”.
At the same time, there are certain interesting tools that allow foreigners to invest. In particular, there is the Bond Connect initiative, which has existed since 2017, but gained particular popularity at the end of 2019. It allows you to use free liquidity in yuan to invest in bonds in China and obtain profitability. The Bond Connect initiative allows the broker to connect to the Chinese system, which will enable the broker to provide yuan-denominated services and products to customers. That means, relatively speaking, if a broker joins, then you, as a client of this broker, will be able to buy bonds denominated in yuan.
This initiative is just emerging in Russia. Only one Russian investor – an investment company – has become a member of Bond Connect. But now there is a very active interaction between the Moscow and Shanghai exchanges for the release of various products in yuan and in rubles, since at the government level they are trying to stimulate payments in national currencies. Plus, we see an increase in payments in national currencies in trade. There is a demand for this currency, there is a free currency in use, and something needs to be done with it. Accordingly, the demand for instruments denominated in yuan and in rubles is growing on both sides».