Exclusive-Russia likely to buy yuan on FX market in 2023 - sources

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By Elena Fabrichnaya

MOSCOW (Reuters) - Russia will start buying yuan on the currency market next year if oil and gas revenues meet expectations, two sources said, opening a new front in an accelerating dedollarisation drive designed to reduce its dependency on Western finance.

Western sanctions on Moscow over its actions in Ukraine have curbed its use of and access to dollars and euros, and the Chinese currency's role in Russia's economy is growing fast.

Daily yuan-rouble trading volumes on the Moscow Exchange are already exceeding dollar-rouble trades on some days, according to Refinitiv data, a trend set be to accentuated in 2023 as an oil embargo and price cap squeeze Russia's traditional export routes.

Russia stopped intervening on the FX market in February due to restrictions imposed on its use of foreign exchange reserves after it sent tens of thousands of troops into Ukraine.

Interventions will resume next year in yuan, the two sources told Reuters, provided that revenues from oil and gas exports exceed 8 trillion roubles as set out in budget plans.

"The central bank can currently now buy yuan," a banking source close to monetary authorities told Reuters. But the bank would not do so while the government continued, as now, to spend its oil and gas revenues.

"(However), if next year budget revenues from the export of oil and gas exceed 8 trillion roubles, then the central bank will buy yuan," that source added.

Under the budget rule, designed to replenish state reserves, oil and gas revenues above that figure are currently directed to the National Wealth Fund (NWF), which Finance Minister Anton Siluanov has said is equivalent to oil prices of $62-63 a barrel.

The central bank and finance ministry did not respond to requests for comment.

Russia has for years adopted conservative fiscal policies and sought to run budget surpluses, but is on course for a deficit of 2% of GDP this year as Moscow ramps up spending to finance its military campaign in Ukraine.

Siluanov's ministry expects 900 billion roubles in additional hydrocarbon revenues next year, though analysts, wary of the impact of export restrictions, are sceptical.

'FRIENDLY' CURRENCY

A senior government source confirmed that FX interventions next year would be in yuan.

"We have a lot of friendly currencies. On the exchange, the Chinese yuan is the most traded currency, it is the friendliest currency so far," the source said.

Russia considers countries that have not joined in with Western sanctions as "friendly".

The banking source said the central bank's operations with yuan would be protected from sanctions and freezing. Russian government assets worth around $300 billion have been frozen since the conflict in Ukraine began.

The government source said a decision about interventions within the framework of the budget rule was needed in order to start accumulating reserves, and as soon as authorities adopted the plan, it would be announced.

At the start of this year, the yuan accounted for 17.1% of Russia's FX and gold reserves, the most recent available data. Central Bank Governor Elvira Nabiullina last week said Russia has sufficient funds in yuan and gold.

The yuan, or renminbi, has already enjoyed a dramatic acceleration into Russia's markets and trade flows, with its share of the currency market reaching 48% in November, MOEX Group said last week, up from less than 1% at the start of the year.

Moscow Exchange, Russia's largest bourse, will expand the range of yuan instruments it offers next year, changes the exchange's head Yuri Denisov said would enable traders to hedge currency risk and increase yuan liquidity.