Russia, struggling to finance its war in Ukraine, has turned to China to bolster financial cooperation.
On Wednesday, the Russian Ministry of Finance issued its first-ever offshore yuan-denominated sovereign bonds.
According to the Financial Times (FT), Russia announced the issuance of 20 billion CNY (approximately 2.83 billion USD) in yuan-denominated bonds. This strategy aims to leverage China’s low interest rates to fund its ongoing military operations.
The bonds were issued in two tranches: 12 billion CNY (approximately 1.70 billion USD) worth maturing in 2029 with a 6% yield, and 8 billion CNY (approximately 1.13 billion USD) worth maturing in 2033 with a 7% yield.
Russian Finance Minister Anton Siluanov highlighted that this move not only strengthens financial ties between the two nations but also enables Russian companies to access capital at lower interest rates.
More than half of the yuan-denominated bonds issued by Russia were purchased by banks.
Russia has been effectively cut off from Western financial markets since its invasion of Ukraine in February 2022 due to severe economic sanctions.
Access to dollars and euros has been restricted, and overseas assets have been frozen.
Consequently, the Chinese yuan has emerged as Russia’s new reserve currency.
The significant purchase of these bonds by Russian banks is aimed at facilitating increased trade with China, a relationship that has grown stronger since the onset of the Ukraine conflict.
For China, this cooperation aligns with its ambitions to establish the yuan as a global reserve currency, potentially accelerating its international use.
Meanwhile, in addition to Russia that has been backed into a corner, Hungary and several African nations have also issued yuan-denominated bonds this year.
Looking ahead, countries such as Indonesia and Pakistan are exploring the possibility of issuing Panda Bonds – yuan-denominated bonds sold in China – in the coming year.
