Japan and India are quad countries, maybe Russia should pay them in Rupee, since Russia have a large reserve from selling oil to India, and Russia has no place to spend the Rupee because it can't buy nothing.
Russia pays Sakhalin dividends in Chinese yuan
Western sanctions on Moscow cast shadow on dollar hegemony
KIRA YAMASHITA and KOSUKE TAKAMI, Nikkei staff writers
June 15, 2023 18:00 JST
Updated on June 15, 2023 19:02 JST
LONDON/WASHINGTON -- Russia has paid dividends from the Sakhalin 1 and 2 oil development projects in Chinese yuan, Nikkei has learned, a move necessitated by Western sanctions on Moscow that have kept financial institutions from accepting dollars related to Russian business.
After Moscow last year established new companies to manage its interests in the projects, located in the country's far east, Russian entities said they would change their dividend payment methods but did not specify which currencies they would use.
Before the sanctions, Sakhalin project dividends had been transferred in dollars about twice a year through a bank account in Singapore. However, with the sanctions essentially barring Russia from the dollar settlement network, financial institutions are now reluctant to conduct Russia-related dollar transactions.
Early this year, the Russian entities created a new remittance route to pay dividends from the Sakhalin projects.
Russian entities recently used yuan to pay dividends to Japanese trading companies that have stakes in the projects. The related transactions are believed to have been handled by Gazprombank, a subsidiary of state oil and gas company Gazprom.
Japan's Sakhalin Oil and Gas Development Co. -- in which the Ministry of Economy, Trade and Industry and Japanese trading companies have equity stakes -- holds a 30% interest in Sakhalin 1. As for Sakhalin 2, Mitsui & Co. has a 12.5% stake and Mitsubishi Corp. 10%. Japanese companies maintained their stakes even after their U.S. and European partners withdrew.
The yuan is not a favored settlement currency for Japanese recipients as it is subject to certain restrictions on cross-border remittances.
Yet yuan-denominated transactions are on the rise around the world. In March, China National Offshore Oil Co. (CNOOC), China's state-owned oil giant, and Total Energies of France settled LNG transactions in yuan. Brazil has introduced a system in which yuan can be used to settle trade and financial transactions with China. Middle Eastern countries are also said to be positive about settling transactions in currencies other than the dollar.
Yuan transactions are increasing particularly in Russia, owing to the sanctions. According to the Central Bank of Russian Federation, the yuan's share of foreign exchange transactions rose to a record high of 39% in March, while the dollar's share fell to 34%.
Sanctions that keep Russia out of the dollar settlement network are jeopardizing the dollar's reserve currency status and favoring China.
According to Stephen Jen and Joana Freire of Eurizon SLJ Capital, the share of the dollar in global foreign exchange reserves fell 10 times faster in 2022 compared to the average rate over the past 20 years.
After adjusting for the fluctuation in exchange rates, the company estimates that the dollar has lost about 11% of its market share since 2016. The dollar's share of official reserves worldwide has fallen from 70% in 2001 to around 58%. Jen and Freire noted that the dollar was the undisputed hegemonic reserve currency until around 2000, but its share has been steadily declining.
The U.S. was able to establish a hegemonic "petrodollar" by instilling a dollar settlement system for oil and other resources. The system is said to have been introduced by Richard Nixon when he was president in the 1970s in an effort to gain global economic influence.
This hegemonic power, however, could be threatened further as Western sanctions on Russia raise concerns about dollar holdings by countries that may potentially fall into conflict with the U.S.
In a speech in May at the Russia-led Eurasian Economic Union summit, Russian President Vladimir Putin said: "Sweeping changes are underway in international finance as well. ... We are pursuing a policy of reducing the share of unfriendly countries' currencies in mutual transactions and planning to expand our activities with our partners around the world, including the EAEU, in order to complete the transition to national currencies."
Related link: Russia pays Sakhalin dividends in Chinese yuan
