The move of Russia to use mostly yuan in foreign trading is something that I never expected.
I did. But only in one scenario that I did not expect to happen so soon. That it happened so fast caught me by surprise.
Let me explain.
Forcing Russia to use RMB in foreign trade is one of the foundations of my personal theory that what caused the invasion of Ukraine in 2022, and possibly also in 2014 was not so much US encroachment of Russia's traditional sphere of influence from the west as the threat of China doing the same from the east.
Russia for all its bellicose rhetoric has long acknowledged that as long as US is present on European continent it has no option but strategic defense. The combined potential of US and former Soviet sattelites was enough to cripple Russia in any armed conflict. Economically Russia had no way to contest US and EU influence with a GDP equal to that of Italy in 2013 - and significantly less after 2014. The western flank for Russia was lost, all it could hope for was holding the lines by force. East was also lost since that means China. However the southern flank meant a number of weaker states and economies which lay in Russia's sphere of influence. The problem with that was that as China expanded with its trade and infrastructural initiatives so did Chinese influence and - in time - hard power.
Russia made an all-in bet and decided to use Ukraine as a showcase forcing China to negotiation about a more equitable settlement for sharing of influence in Asia.
And it failed spectacularly. The visit from Xi is really a resolution to that bet where he came and took all the money on the table, told Putin "GG" and suggested a different game next time so as not to overburden him when he's so heroically fighting against American hegemony.
Now why do I think that?
If Russia will use "mostly Yuan" in foreign trade then it means two things:
First of all all Russia-China trade will be in Yuan. This means that Russia will sell energy and other resources to China at current discount prices (or lower) and in turn China will pay in Yuan which Russia will then use to facilitate trade with its foreign partners as well as purchase goods from China. It completely eliminates all chances that Kremlin had for propping up the Ruble through foreign trade. Possibly "mostly Yuan" means that trade with India will be allowed to be priced in Ruble but probably not for long.
Secondly all other foreign trade will be facilitated in RMB which will solve part of the issue of legitimizing RMB as viable currency, especially for any country that falls under threat of western sanction. That means that these sanctions will follow to some extent which will create a positive feedback loop reinforcing the use of RMB for trade in countries that do negligible trade in USD or EUR. This is where the deal with Saudis and Iran comes into play because it means that with establishing of RMB-denominated energy markets the most crucial choke-point for de-dollarization is avoided. And because Russia is hard-pressed for foreign trade in its current situation it will do the worst part of the job for China.
This is Xi taking Putin to the cleaners in strategic terms. Russia just lost its play at internationalization of Ruble which is a must for any world power. Ruble becomes an internal currency of Russia.
Currency is more important in global strategy than nuclear weapons because nuclear weapons are "will not use" factor. People who comment on nukes have no idea about actual nuclear use policy and that it is essentially inverse of conventional policy which is "will use". Nuclear weapons are boundary parameter. They can't be used without redefining the current boundaries accepted by all nuclear powers. Currency is what facilitates all power projection - soft and hard, overt and covert and conventional
and nuclear.
Without it's own currency on world markets Russia becomes the world largest and northernmost North Korea.
And it really sounds like a junior partner.
Russia is not a "junior partner". You have to understand the language of politics to properly interpret the events of today.
Xi stating to Putin that Russian people will elected him in 2024 was him saying that China will not overthrow him and he has Beijing's blessing to introduce whatever measures he considers necessary to stay in power. Why would he say something like that? There's only one explanation that has historical precedent.
We just witnessed a de facto act of
homage of Putin's Russia to China. It was done with all necessary pretense and courtesy for practical reasons but that's what it was.
As of today Russia is a vassal state of China.
Put it in your diaries. It's a historical date.
21st of March 2022 Vladimir Vladimirovich Putin who styled himself the heir of Peter the Great who was the founder of Russian Empire gave homage as a vassal of a foreign power.
For those who choose to reject reality - can you tell me at which moment the UK became a vassal to the US? Because if you can't then don't dispute what I just told you. It happened. Deal with it. I'm dealing with my head still spinning. But I don't question historical precedent.
However, Xi must've promised some weapons, or weapons if the things turn sour for them in the Ukraine war.
Last summer he already told Russia that Ukraine is Putin's problem during the CSTO summit and there is no reason for him to change this stance now that Russia showed even more weakness.
My guess would be that Xi promised Putin that Russia in its current form will survive if he loses in Ukraine.The deal is that if Putin can't handle Ukraine then it's his problem and he has to take the loss but China will back all measures necessary for regime stability in Russia and will provide economic help if necessary. Military aid for the operations in Ukraine would hamper China and Russia is not in a position to demand that.
This deal is so bad for Russia as a sovereign world power that it can only mean that Russia is in a much worse condition and place than I expected it be. This was "take it or leave it, we will take what's ours anyway with your permission or over your dead body" kind of deal.
Putin now has to make his own calculations on whether it pays him to push even more aggressively in Ukraine and hope that economic turmoil will force US to accept freezing of conflict in current state or accept that he is very likely to lose the territory he gained in 2022 (not sure about DPR/LPR and Crimea) and will have to crack down on dissent domestically.
Considering that there was no additional mobilisation and that the creeping offensive has not yielded results it will depend on how successful the upcoming Ukrainian push will be.
At this point what happens in Ukraine is irrelevant because the war is effectively over. It was a contest to decide whether Russia is a world power and it was just settled.
By the way it also means that Xi is calling the shots in terms of the peace deal. He might have told Putin his demands that need to be met and left him to choose the time or he might have told him that he will lead the peace initiative.
Russia will become wealthy, now how that wealth will be distributed among its people, that's another matter. People might be tempted to say "Not China's problem!", but human psychology doesn't work like that. With this new arrangement, China should aim to encourage/push Russia towards a more equal distribution of wealth that what they have currently
China will definitely do that to some extent because it will create a more stable Russia which is in China's interest. The US will attempt to destabilize Russia and the best counter to that is economic stimulus and investment signalling future prospects and those can only be credible with China's involvement.
It will (or at least should) also facilitate the long-term de-nuclearization of Russia due to re-directed military budget. As soon as China has its own nuclear arsenal expanded sufficiently Russia's will be reduced to minimal deterrence of France or Britain. Nothing else is necessary.
Of course I might be wrong about these predictions but I'm just using historical precedent which is extremely consistent in what follows what. This is a game as old as human civilization itself.