Putin's Strategy Under Threat as China Mulls Major Economic Shift

Global economies brace as China considers yuan devaluation

by Zain ul Abedin
Putin's Strategy Under Threat as China Mulls Major Economic Shift
© Omer Messinger/Getty Images

Amid growing concerns that China may consider devaluing its currency, the yuan, a move that could send ripples through global markets, Russia's economic strategies are facing a critical test. President Vladimir Putin's longstanding initiative to reduce Russia's reliance on the U.S.

dollar is now under scrutiny as international relations continue to evolve. During the BRICS (Brazil, Russia, India, China, South Africa) summit last August, Putin emphasized the "irreversible" decline of the U.S. dollar's dominance in the global economy.

He highlighted Moscow's commitment to "de-dollarization," an effort to pivot away from currencies of countries critical of Russia’s actions, particularly in the context of Ukraine. However, the potential devaluation of the yuan adds a layer of complexity.

China's own economic hurdles, marked by dwindling consumer confidence and a floundering property sector, alongside a downturn in manufacturing, fuel discussions around the benefits and risks of a weaker currency. A depreciated yuan might enhance Chinese export competitiveness and facilitate interest rate reductions, but it also risks unsettling global currency markets and diminishing the yuan's standing against the dollar.

Jay Zagorsky, an associate professor at Boston University's Questrom School of Business, explained to Newsweek that manipulating exchange rates to lessen the world's dependency on the dollar is not straightforward. "Spurring exports by devaluing a currency does not make other countries suddenly want to use the devaluing currency more," Zagorsky stated.

He added, "If anything, a surprise devaluation makes financial traders less inclined to use that currency in future trades, as it helps them avoid further risk from exchange rate fluctuations."

Yuan's Global Ripple Effects

In 2023, trade between China and Russia amounted to approximately $130 billion in exports and $110 billion in imports.

However, these figures are minuscule when compared to the vast transactions handled by the SWIFT banking system, which processes over $150 trillion annually, indicating that the impact on global currency dynamics might be limited.

While a weaker yuan could benefit Russia's imports from China, it could also deter other nations, like Brazil, from embracing the yuan, potentially affecting competitive dynamics in regions such as Southeast Asia and altering regional trade relationships.

In response to these shifting economic landscapes, China’s central bank has been steadily increasing its gold reserves, signaling a strategic move to diversify away from Western currencies. Concurrently, Russia has been redirecting its exports towards nations like China, India, and Turkey, which has helped mitigate the effects of Western sanctions.

These maneuvers underscore the delicate balance and interconnectedness of global economic policies and their far-reaching consequences.