Russia is increasingly using China’s currency to evade sanctions

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Good morning. There’s a fascinating court case opening in Strasbourg today where a group of Portuguese youths are challenging more than 30 countries, accusing them of lax environmental policies. Our climate correspondent is there.

Today, I reveal a new study that underscores Russia’s huge economic shift towards China in response to western opposition to its war against Ukraine, while our Balkan correspondent hears from the UN’s man in Bosnia that the country shouldn’t be allowed to enter the EU with Milorad Dodik in office.

Turning Chinese

Russia is using Chinese currency for at least a fifth of its imports, a new study has found, illustrating both Moscow’s increasing reliance on Beijing and its efforts to evade western sanctions.

Context: Sanctions imposed on Moscow by the EU, US and others as a result of its war against Ukraine have made it increasingly difficult for Russia to get hold of large amounts of western imports. It’s also made it more expensive for it to trade using the dollar, euro or other western currencies.

By the end of 2022, 20 per cent of Russia’s imports were invoiced in yuan — up from 3 per cent a year previously, according to a research paper published this morning by the European Bank for Reconstruction and Development.

Some of that increase is owing to increased imports from China itself, but the use of yuan to settle imports from third countries rose to 5 per cent, from just 1 per cent before the war was launched in February 2022.

“Yuan is being used as a vehicle currency,” said Beata Javorcik, the EBRD’s chief economist and one of the paper’s authors. “Russia is now the third-largest clearing centre for offshore yuan transactions.”

Asking trade partners to invoice them in yuan is just one way Moscow is evading sanctions, alongside tactics such as importing products through middleman countries or exporting its oil on tankers that sail without western insurance.

The EBRD paper makes stark just how much Moscow is avoiding western banks when trying to bypass sanctions: when it comes to sanctioned goods and dual-use equipment, which can be used by civilians but also to make weapons, “the increase in [yuan] invoicing was more pronounced,” the paper found.

But the research also strikes a warning for any western policymakers who might see the data as a sign that their measures are working.

“Rising geopolitical tensions in general, and the use of trade sanctions in particular, may reduce the attractiveness of the use of the US dollar as a vehicle currency in international trade,” they write. “This, in turn, might lead to a greater fragmentation of global payment systems.”

Chart du jour: Far out

Görlitz in eastern Germany has been a stronghold for the far-right Alternative for Germany (AfD). But the party is increasingly setting the tone in Berlin, too.

One-man impasse

Bosnia should get rid of separatist Serb leader Milorad Dodik before joining the European Union, its international envoy tells Marton Dunai.

Christian Schmidt, UN high representative of Bosnia, said he could not imagine Dodik and his entourage deciding about European affairs. “I’m not only referring to his close political friendship with Vladimir Putin, but [his] incalculable behaviour,” Schmidt said.

Context: As the Balkans prepare for EU accession, Bosnia is one of two countries yet to settle even basic questions of statehood — the other being Kosovo.

Bosnia and Herzegovina caught the worst of the Yugoslav wars in the 1990s, and has been governed by an international peace agreement since. It is still plagued by crime, corruption, poverty and emigration.

Today, Dodik has come to question the federal state and demanded secession for the Serb Republic — one of two constitutional units of Bosnia — egged on by his close ally, Putin.

“The special situation of Bosnia is [clear]. We are not like any other applicant country, just getting the questions for negotiations from the European Commission,” Schmidt said.

Schmidt said that the enlargement deadline of 2030, which has been floated in Brussels, was “very optimistic”.

“But I am not in favour of lowering the standards,” he said, adding that the accession criteria should not be touched. “There is a lot of work to be done, and you won’t get anywhere in the Balkans without a straight position.”

Another senior European diplomat said it might be easier to handle the region’s problems inside the EU, which would also keep membership prospects for Ukraine credible.

“Despite their problems, the Balkans are far easier than Ukraine,” the diplomat said. “Brussels must admit and absorb the Balkans first. That way, they would gain some time as well to see if Ukraine is feasible.”

What to watch today

1. Spain’s parliament votes on a bid by opposition Popular party leader Alberto Núñez Feijóo to become the next prime minister.

2. European Court of Human Rights hears court case on climate change.

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