(Bloomberg) -- Russian banks and companies are increasingly choosing Kazakhstan for currency operations needed to conduct payments with China after US sanctions made them overly complicated at home, according to people familiar with the matter.
In June, President Joe Biden’s administration imposed a raft of measures designed to further isolate Russia from the international financial system over the Kremlin’s war on Ukraine. The restrictions targeted Moscow’s main currency exchange and also raised the risk of so-called secondary penalties for banks in countries that continue doing business with Russia, which has delayed or disrupted payments to and from trading partners like China and Turkey.
With more of Russia’s import and export deals now settled through intermediaries in other locations, transactions with the yuan and ruble soared on the stock exchange in Kazakhstan. From June to August, the monthly average trading volumes of the tenge versus the Chinese and Russian currencies more than doubled to 893 million yuan ($127 million) and 86 billion rubles ($925 million), respectively, compared with the first five months of the year, according to data from the central bank, which monitors transactions with the local currency.
The increase “is connected to the halt of US dollar trading at the Moscow exchange,” the central bank in Astana said in a written response to questions. The bank also said tenge-dollar trading had increased 50% annually this year due to “growth in economic activity and trade” in the country, which borders both China and Russia.
Kazakh banks have registered stronger demand for yuan from Russian businesses, people with knowledge of the situation said, declining to be named as the transactions aren’t public. Those trades can be done with currencies other than the tenge and as such won’t be registered in the central bank’s data, they said.
Banks from other neighboring countries are also reaching out to their Kazakh counterparts to trade the Chinese currency, including the yuan-ruble and yuan-dollar pairs, the people said. Many of the transactions are settled by Kazakh banks matching buyers and sellers among their clients, again without such deals entering the official statistics, they added.
Kazakhstan is among countries that have been central to efforts by the US and its allies to isolate Russia’s economy. The Central Asian nation, which shares the world’s second-longest border with Russia and is part of a customs union with its neighbor, has already said some measures intended to choke off Moscow’s access to restricted goods have disproportionately hurt its economy instead.
The combined June-August amount of trading in the yuan-dollar cross on the Kazakhstan Stock Exchange totaled $1.63 billion, an increase of about 33% from $1.23 billion in the same three months of last year, according to data from the bourse.
Russia’s trade volume with China surged by more than 60% to $240 billion in 2023, according to China’s customs data. The world’s second largest economy is now Russia’s main trading partner, buying its oil and other commodities at a discount while offering access to a wide range of consumer and high-tech products.
--With assistance from Kira Zavyalova.
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