Русский
The Bank of Russia has announced it is suspending trade in the Hong Kong dollar with immediate effect from Thursday, June 13, with the move meaning that settlements on the Moscow Exchange (MOEX) will be suspended. The suspension has come after the United States issued a further round of sanctions on Russia meaning that third-country financial institutions risk being sanctioned for conducting or facilitating significant transactions with Russia, or providing any service to them.
The move to suspend trading in Hong Kong dollars comes as the Hong Kong dollar is pegged to the US dollar rate, while the Hong Kong dollar is also linked to the Chinese RMB Yuan. 2023 was the 40th anniversary of the peg being in place. The move to suspend Russian trading in the Hong Kong dollar would have come after consultations between Moscow and Beijing as a reaction to the new sanctions.
The United States also imposed sanctions on several Hong Kong firms, including VPower Finance Security, for aiding trade in gold produced by an already sanctioned Russian gold miner, the U.S. Department of the Treasury said.
In addition, the National Clearing Center and the National Settlement Depository of the Moscow Stock Exchange (MOEX) have also been blacklisted.
Russia’s Central Bank said in a statement on Wednesday that trading in the Hong Kong dollar would continue “on the over-the-counter market.” Individuals and companies will be able to purchase and sell the currency at Russian banks. All bank deposits made in the currency will remain secure, the financial regulator stated.
The Bank of Russia said it will use “bank records and information from digital over-the-counter trading platforms” to establish exchange rates for dollars and euros in the future.
The US move will be seen as a sanctions attack on both Russia and China, and especially Hong Kong. The territory lost its most-favoured trade status with the United States in 2021 as the US views the territory as home to many American investors and wishes to ‘preserve its determination to promote Hong Kong’s prosperity, autonomy, and way of life.’ U.S. goods and services trade with Hong Kong totaled an estimated US$56.2 billion in 2022. However, Hong Kong reverted to Chinese rule in 1997.
The move however is likely to have little trade impact, as Hong Kong has been turning away Russian clients from its banking services for the past two years and very few Russian businesses have been able to operate sustainably in the territory.
China however will be concerned that the United States wishes to sanction Chinese banks operating in the territory and therefore impact the mainland Chinese banking system, which the US says has been instrumental in providing financial services to Russia.
It remains unsure what the next steps will be. A worst-case scenario – and the implied threat – is that a fully fledged trade war breaks out between the United States and China with Washington going so far as to sanction Chinese banks. If that happened, global trade flows would be immediately disrupted and multiple economies – including the United States – plunged into recession. The likelihood of war would also significantly increase as all countries would want to adopt resource and financial protectionist measures, leading to increased military threats.
On the other hand, the US moves will also stress the urgency of China, Russia and their allied trade partners moving ahead as soon as is practical with a non-US dollar currency – as has just been discussed with the BRICS.
Further Reading
Russia – Hong Kong 2024 Trade & Development
Russia’s trade relations with Hong Kong, China, Macau and Taiwan are comprehensively covered in our 2024 Russia’s Pivot To Asia guide. This is a complimentary download and may be accessed in English here and in Russian here.
