Russia has been in trouble since plunge in oil price and western sanctions from US and Europe and it was facing economic difficulties in declining ruble value as well. Russia the biggest energy exporter, saw its currency tumble as much as 59% this year. Former economy minister Alexei Kudrin said “Russia was entering a full-fledged economy crisis”. At this point of time China government comes forward to help Russia to overcome the economic crisis. Two Chinese ministers offered support for Russia as President Vladimir Putin seeks to shore up the ruble value without depleting Foreign Exchange reserve. According to Dmitry Peskov, a spokeperson for President Putin said "Russia isn't talks with china about any financial aid on Dec 20".
The commerce minister Gao Hucheny said “expanding a currency swap between the two nations and making increased use of Yuan for Bilateral trade would have the greatest impact in aiding Russia”, according to the broadcaster.
“Russia has the capability and the wisdom to overcome the existing hardship in the economic situation," Foreign Minister Wang Yi told journalists, China Daily reported Monday. “If the Russian side needs it, we will provide necessary assistance within our capacity”. Though the offer from China won't completely relieves Russia from the main source of pressure on the ruble, Plunging oil prices and sanction linked to Russia's annexation of Crimea from Ukraine.
Russia's Ruble has gained 3.1% against the dollar by 12:31am in Moscow. The Micex Index (INDEXCF) was little changed and the yield on Russia's 10 year old bond fill 30 basis points to 13.3% according to data compiled by Bloomberg.
President Xi Jinping last month called for China to adopt “big-country diplomacy” as he laid out goals for elevating his nation’s status as the world’s second-largest economy.
“Many Chinese people still view Russia as the big brother, and the two countries are strategically important to each other,” said Jin Canrong, Associate Dean of the School of International Studies at Renmin University in Beijing, referring to the Soviet Union’s backing of Communist China in its first years. “For the sake of national interests, China should deepen cooperation with Russia when such cooperation is in need.”
China and Russia signed a 3 year currency swap line of 150 billion Yuan($24 billion) in October, an agreement that can be extended with the consent form both the parties. The people bank of China published a chart show the details about the agreement in microblog, on Dec 19 and the official people's Daily newspaper said yesterday(22 Dec) that “the explanation was provided to address concerns the nations could suffer losses if Russia used the facility to obtain funds”.
“As we pay out and receive in return are Renminbi, we don't have the face the exchange rate risks” the PBOC said in the microblog. The swap amount can be adjusted as per the changing circumstance and prevailing exchange rates rather than pre-determined.
China is promoting the Yuan as an alternative to dollar for global trade and finance, the PBOC has signed currency swap agreement with other 28 countries as well to encourage this.
China foreign exchange reserves of $3.89 trillion this is the world's largest and compare with Russia $374 billion.
Right now, China and Russia have decided to reduce the dependence on US dollars in International transcations.
China signed a three decade $400 billion deal with Russia to buy gas earlier this year. Oil imports from Russia hit an “all time high” in November according to China's General Adminstration.
Russia is not the first country getting help from china for its financial support. Argentina and Venezuela has also received help from China. Argentina’s central bank utilized a cross-currency swap with the PBOC to stem a slide in the peso, which dropped 24 percent against the greenback this year as the government defaulted on dollar bonds. The peso has weakened 0.3 percent this month following a similar decline in November.
In Venezuela, President Nicolas Maduro last month added $4 billion he borrowed from China to the country’s reserves after they fell to an 11-year low. The country now has about $21 billion in its coffers, equal to the amount of debt it has coming due in 2015 and 2016.
“I don’t think this is a broad policy to support any country that asks for Chinese help,” Steffen Reichold, an economist at Stone Harbor Investment Partners in New York, said in an e-mail. “Several countries are currently in a tight spot and the Chinese are offering to help. That buys them some goodwill and influence, and promotes the use of the yuan.”
