(Bloomberg) -- Russia’s ruble strengthened against the Chinese yuan for the fifth day in a row after the US announced sanctions against the Moscow Exchange and its subsidiaries last week. 

The yuan weakened past the level of 11 rubles for the first time since May 2023, falling by more than 5% during trading in Moscow on Wednesday before paring some of its losses. That follows Tuesday’s drop of more than 4%, the biggest decline in more than two years.

The new US restrictions against Russia’s main exchange forced it to end trading in US dollars and the euro. Market participants are worried that China’s currency will suffer a similar fate and are getting rid of the yuan, said Evgeny Kogan, a professor at Moscow’s Higher School of Economics. 

Demand for the yuan is very weak for several reasons, said Evgeny Loktyukhov, an analyst at Promsvyazbank Pjsc. Those include problems with importers’ payments in yuan and the unwillingness of foreign companies to switch to payments in China’s currency, as well as the impossibility of carrying out a number of conversion transactions through exchange trading.

Since the US intensified pressure on countries seen as friendly to Russia, some banks in the United Arab Emirates, China and Turkey have tightened curbs on payments with Russian counterparts, complicating trade. In the first five months of the year, Russia’s imports shrank by $13 billion compared to the same period in the previous year, Bank of Russia data shows. 

The latest round of US sanctions also targeted dozens of Chinese companies, which may exacerbate the situation with imports from China. 

At the same time, the supply of yuan on the local market remains significant due to mandatory sales of foreign exchange revenues by exporters and the daily operations of the Bank of Russia. 

The strong ruble could aid the central bank in its fight against the country’s accelerated inflation, but it will also weigh on export revenues and reduce income for the national budget. 

“The depth and duration of the strengthening of the ruble against the yuan will depend on officials’ actions,” said Ilya Fedorov, an economist at BCS. “The Bank of Russia may halt its interventions until the situation stabilizes, or the government may lower requirements for the mandatory sale of foreign currency by exporters.”

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