Russia has been using the Chinese yuan to get around sweeping Western sanctions — but this side door may be closing

• Bank of China has halted CNY transactions between Russian clients and banks in the US, EU, UK, and Switzerland, per RBC.
• The bank made the move over fears of secondary sanctions from the West, per RBC.
• Russia has been using the Chinese yuan to get around Western sanctions.

Russia has been using China’s yuan to get around sanctions — but at least one major Chinese bank has halted transfers from Russia over fears of secondary sanctions from the West.

The Bank of China, a major Chinese lender, has started restricting transactions using the yuan between Russian clients and lenders in the US, the European Union, Switzerland, and the UK, Russia’s privately owned RBC business news outlet reported on Sunday, citing representatives from Modulbank and Finam bank.

The restrictions impact transfers involving the Bank of China as the correspondent or intermediary bank that moves money from Russia to third-party countries.

“The decision was not made by China, but rather by the EU and the US. That is how they are trying to ramp up the sanction pressure by choking off alternative channels in the form of yuan,” Pavel Semyonov, the chairman of the board of Modulbank, told RBC, per a Novaya Gazeta Europe translation. Russian clients can still make yuan transfers within the Bank of China network, Semyonov added to RBC.

The Bank of China is imposing the transfer restriction over fears of secondary sanctions or other restrictions, Dmitry Lesnov, Finam’s customer service development head, told RBC.

The Bank of China’s crackdown on intermediate yuan transfers comes as the Russian economy has become more dependent on the currency amid sanctions over the Ukraine war, which includes banning some Russian banks from the Swift global financial messaging system.

The Chinese yuan surpassed the US dollar as the most heavily traded currency in February and March, according to Bloomberg data.

Much of the usage is used to settle Russia’s trade with China. In fact, China has been using its own currency — the yuan — for almost all of the Russian oil it bought over the past year, Reuters reported in May, citing multiple trading executives with direct knowledge of the matter.

Semyonov told RBC that Russian yuan transfers to the US and EU make up just 3% of all transfers in the currency.

The Bank of China, Modulbank, and Finam did not immediately respond to requests for comment from Insider.