Russia is preparing to issue government bonds in China’s currency, the yuan, for the first time. The plan is designed to help cover a sharply increasing budget deficit that has grown far beyond the original target set for 2025. The move marks a major shift in how the country is managing its finances during a period of reduced income and rising expenditure.
The Finance Ministry is working on issuing up to 400 billion rubles’ worth of yuan-denominated bonds. This is equal to around $4.9 billion. These bonds will be placed on the Moscow Exchange with maturity periods ranging from three to ten years. The goal is to attract a wide group of investors, including banks, asset management firms, brokers, and retail investors. According to officials, discussions with potential investors have already taken place, and the announcement of the issue is expected soon.
This step is being taken at a time when the government’s income has fallen sharply, creating pressure to find new funding sources to meet spending needs.
Rising Deficit and Declining Income
Russia’s budget deficit—the difference between what the government earns and what it spends—is rising fast. The deficit for this year is now projected to reach 5.7 trillion rubles (about $63 billion). This is almost five times higher than the initial forecast of 1.2 trillion rubles.
A major cause of this financial strain is the sharp decline in key revenue streams. Oil and gas revenues fell by 20% year-on-year as of September. Income from customs duties also dropped by 19%. These two components normally contribute a large share to the federal budget.
Even though non-oil tax income is increasing, it is still not meeting expectations. Updated budget figures show that Value-Added Tax (VAT) collections will be lower by 1.19 trillion rubles. Profit tax revenues will fall short by 167 billion rubles, and recycling fee collections will be 440 billion rubles below earlier estimates.
This drop in income has pushed the government to explore alternative ways to raise money and support state spending.
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Why Bonds Will Be in Yuan, Not Dollars or Euros
The decision to issue the bonds in yuan instead of US dollars or euros is a notable shift. The yuan has become more widely used in global trade, and its role in Russia’s economy has increased in recent years.
Analysts expect the yuan bonds to be mainly purchased by large state-controlled exporters that earn revenue in the Chinese currency. Oil companies such as Rosneft and Lukoil have recently been converting their yuan earnings back into Russia. These conversions are taking place ahead of new US sanctions that will come into effect on 21 November.
The Moscow Exchange, where the bonds will be issued, is under Western financial restrictions. These restrictions limit access to Western currency markets, making it harder to issue bonds in dollars or euros. As a result, the yuan has become a more practical option for raising funds within the domestic market.
Earlier this week, the Finance Ministry approved a policy allowing state-owned companies to invest their extra funds locally, including in government bonds. This move enables state firms to use spare money to purchase the upcoming yuan-denominated securities if they choose to do so.
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Yuan’s Growing Presence in Russia’s Financial Market
Issuing yuan-denominated government bonds shows the growing use of the Chinese currency in Russia’s financial system. Investors are turning more towards yuan-based products as access to Western currencies remains limited.
At present, 166 billion rubles (around $2 billion) worth of yuan corporate bonds are in circulation in Russia. The government’s planned 400-billion-ruble issue will be more than double this amount, greatly expanding the yuan’s role in the local bond market.
The move also reflects stronger financial ties between Russia and China, with more trade now settled in yuan. This has made the currency more familiar to Russian investors and companies, increasing interest in yuan-based investments.