Here are several potential pitfalls for Russia if it decides to further cut its dependence on the US dollar by buying up Chinese yuan on the currency market. Some of these pitfalls include:
Currency risk: Like any currency, the value of the Chinese yuan can fluctuate, and Russia would be exposed to this risk if it decided to hold a large amount of yuan. If the value of the yuan were to decline, it could lead to losses for Russia.
Political risk: Russia’s relationship with China is not without tension, and there is a risk that any significant shift in Russia’s foreign exchange reserves toward the yuan could be seen as a political move by China. This could lead to further tension between the two countries and could have negative consequences for Russia’s relationship with other countries as well.
Economic risk: China’s economy is not as stable as some other major economies, and there is a risk that any economic downturn in China could have negative consequences for Russia. This could be particularly concerning for Russia if it has a large proportion of its foreign exchange reserves invested in the yuan.
Limited liquidity: While the Chinese yuan is an important global currency, it is not as widely traded as the US dollar or the euro, and there may be less liquidity in the yuan market. This could make it more difficult for Russia to sell its yuan holdings if it needed to do so.
Overall, Russia would need to carefully consider these potential pitfalls if it decided to further cut its dependence on the US dollar by buying up Chinese yuan on the currency market. But, again, when Russia had ever carefully considered anything.
