A woman walks past boards showing currency exchange rates in Moscow, Dec 16, 2014.[Photo/Xinhua]

The Russian rouble depreciated by more than 25 percent last week, defying the Russian central bank's effort as to hike interest rate. Moscow resorted to its last resort – selling foreign reserves – to defend its currency. In response, the rouble rebounded by 7 percent to reach below 63 against the US dollar and in the meantime, the Russian RTS index recovered by 12 percent. So how will this wave of rouble depreciation affect China?

China-Russia currency swap deal

The public may be concerned over the China-Russia currency swap deal signed on Oct. 13, thinking the depreciating rouble may cause loss to China. But experts clarified the deal is a backup scheme and there has not be actual currency swaps taking place.

The swap deal, which has a maximum quota of 150 billion yuan over 815 billion roubles, is effective for three years, but extendable upon agreement. A financial expert at the People's Bank of China, China's central bank, noted that the currency transfers would only take place when one side initiates a swap, meaning that no losses will occur when such swaps did not actually happen.

In addition, the same expert said that the initiator of a currency swap should stick to the exchange rate of the day when the actual transaction takes place – instead of a fixed rate – and return the same amount of currency plus interest.

In other words, if Russia swaps a sum of roubles with the equivalent value in Chinese yuan, Russia has to return the same amount of yuan upon the deadline as well as the interest. This will not involve any exchange rate risk for China.

Go to Forum >>0 Comment(s)