Russia to buy more Yuan in 2023
During 2020, we saw decisions that set in motion a series of actions that appear to be continuing into 2023. As we can see, Russia will likely buy Yuan on its foreign exchange market in 2023. But it doesn't stop with Russia and China; China and Saudi Arabia are now in talks to strengthen their relationship. Some of this isn't exactly new. Consider that the Yuan currently accounts for 17% of Russia's foreign exchange and gold reserves. However, some of this indicates the beginning of new trends, both financially and in terms of geopolitical alliances.
Consider the amount of Dollar-Ruble volume used for trading on Russia's exchanges. You can see that the Dollar-Ruble volume exploded in early 2022 and then dropped off a cliff as soon as sanctions were imposed after Russia invaded Ukraine. However, the Yuan-Ruble volume gradually made up for it and, at times, surpassed it.
Russia has historically had massive foreign exchange reserves due to running budget surpluses. If they receive the expected oil and gas revenues in 2023, they will use them to purchase Yuan. This year, it hasn't done so because they're on track to run a 2% deficit. Compared to the United States, the current budget deficit for 2022 is $1.3 trillion, which, while recovered from 2020 and 2021, is still at 2009 levels.
In percentage terms, that equates to about 20% of total government spending and about 5% of GDP.
Vladimir Putin and Xi Jinping are friends and Russia has openly referred to the Yuan as a friendly currency. They claim that the Yuan is the friendliest currency among all their friendly currencies. Russia considers any country that has not joined the West in imposing sanctions to be friendly. China is increasingly known for being friendly to countries solely because of their business relationships, with no regard for what the country does with its internal policies or politics. As a result, Saudi Arabia may soon shift its focus away from the United States and toward China.
Xi Jinping recently paid a three-day visit to Saudi Arabia. During this visit, they signed trade, technology, and military cooperation agreements. While these recent developments indicate an improvement in their relationship, they are not unexpected. They've been working on their relationship for many years. China's trade with Saudi Arabia increased by 39% between 2020 and 2021. Some people around the world are concerned that the Petro-dollar will eventually be replaced, as the Petro-Yuan could be used for international oil transactions.
These things usually take a long time to unfold, and what you'll see along the way are hints about what the future might look like. We are constantly seeing a steady drip of these types of signposts occur over and over. They've been happening at an increasing rate in recent years. The more of these events and small signs we see, the more other countries will take notice and think to themselves, "Hey, if this is potentially the way the world is going, I might need to have a backup plan myself". This will undoubtedly lead to more countries explore backdoor relationships with other countries to avoid sanctions. And just in case, central banks might start to stockpile assets such as gold, which are not sanctioned by countries such as the United States.
The future of the global financial system may look very different from what it does now. Still, at least for me, the obvious takeaway here is that if it's worthwhile for countries to start looking for ways to hedge themselves against sanctions and against the US saying "Hey, you can't use our Dollars anymore," then it's even more important for individuals like you and me to hedge ourselves. Looking at the gold charts, it's been rising steadily for the past 54 days and it grew +12%.