Big News: India Turns to RMB to Purchase Crude Oil from Russia as Renminbi Depreciation Efforts Continue
This morning, a significant development emerged from the international market as sources revealed that several refineries in India have started using the Chinese renminbi (RMB) to buy crude oil imported from Russia. This move comes after talks between India and Russia regarding settlement issues previously collapsed. Interestingly, the renminbi also witnessed an upward turn this morning, momentarily surpassing the 7.24 mark. As a result, it begs the question: will the momentum of RMB depreciation be reversed?
However, there is another major variable that could impact the renminbi exchange rate, and that is the United States Treasury Secretary Janet Yellen. China’s Ministry of Finance confirmed yesterday that Yellen would be visiting China from July 6 to 9. Before her trip, Yellen engaged in a “frank and productive” dialogue with Chinese Ambassador to the United States Xie Feng, according to a statement released by the U.S. Treasury Department on Tuesday (July 4).
Why is Yellen considered a significant variable in the RMB exchange rate? It is closely tied to the challenges the U.S. economy currently faces.
Renminbi’s Effort Amidst India’s Move
Over the past three trading days, the RMB exchange rate has witnessed substantial fluctuations. Since June 15, USD/CNH has fallen below the upward trend line for the first time, experienced the first occurrence of top divergence, and displayed three small negative lines – a first in the past two months.
Adding to the news today, Reuters reported on Monday (July 3) that Indian Oil Corporation (IOC), India’s largest buyer of Russian crude oil, is also resorting to using the RMB to settle transactions. At least two of India’s three private refiners are following suit, paying for Russian imports in yuan, as confirmed by two sources. According to these sources, IOC settled the transactions with Russian oil company Rosneft by converting the payment into RMB at the Bank of China through ICICI Bank. Since June, Indian Oil Corporation has continuously settled various Rosneft cargoes in RMB. The exact number of barrels of Russian crude purchased by Indian refiners using Chinese yuan remains unknown, but multiple batches have been settled in RMB since June.
An Indian government source disclosed that Indian refiners typically prefer settling such trades in U.S. dollars. However, if the seller requests a different currency or if the bank does not wish to proceed with settlements in USD, the refiners occasionally opt for alternatives such as the Indian Rupee and the Chinese RMB.
Apart from India, Pakistani Oil Minister Malik confirmed last month that the first 100,000 tons of Russian discounted crude oil purchased by Pakistan were also settled in RMB.
Considering these recent developments, it raises the question of whether the renminbi’s depreciation trend will now be reversed. However, there is another variable that may come into play.
Yellen’s Meeting with Xie Feng
U.S. Treasury Secretary Janet Yellen is scheduled to visit China from July 6 to 9. Prior to her trip, the U.S. Treasury Department’s statement on Tuesday (July 4) highlighted a “frank and fruitful” conversation between Yellen and Chinese Ambassador to the United States Xie Feng. Both sides expressed support for maintaining open lines of communication and responsibly managing the bilateral relationship, leading up to Yellen’s upcoming visit to Beijing.
The statement also mentioned that during the dialogue, Yellen raised concerns and emphasized the importance of cooperation between the two largest economies on global challenges, including macroeconomic and financial issues.
Yellen’s trip involves three main objectives. Firstly, holding high-level economic talks with Chinese counterparts to discuss global challenges and matters of mutual interest. Secondly, meeting with relevant individuals from American companies operating in China. And thirdly, reiterating the American standpoint of not supporting “decoupling” and justifying the ongoing process of “decoupling” carried out by the United States.
Based on recent actions from Washington, their tough stance on China does not seem to be wavering. Yellen also outlined “three basic principles” for China, which include ensuring the national security interests of the United States and its allies, fostering a healthy economic relationship that benefits American workers and businesses, and addressing pressing global challenges like climate change and debt distress through cooperation with China.
Therefore, while Yellen’s visit may not completely reverse Sino-U.S. relations, it provides an opportunity for both countries to make progress in certain areas and deepen their understanding and exchange views through dialogue.
So, why is Yellen’s trip considered the most significant variable for the RMB?
One could consider the stance taken by the United States and its Ministry of Finance during the renminbi’s depreciation in previous years. Earlier, whenever the renminbi experienced a significant depreciation, the U.S. would threaten to label China as a “currency manipulator.” However, with the gradual expansion of the renminbi’s depreciation since last year, such threats have ceased. This change is attributed to the economic situation in the United States. Currently, inflation levels in the U.S. remain high, and the country still relies on affordable goods from China to stabilize prices. In this context, a relatively low RMB exchange rate benefits the United States. Consequently, they are unlikely to mention the RMB exchange rate at this time and may even welcome its depreciation. It can be anticipated that Yellen’s visit will probably involve discussions on macroeconomic issues such as tariffs, exchange rates, and debt.
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