Mechanisms for Managing Currency Risks Using the Example of the Yuan-RublePair

Abstract

The article considers the mechanisms of currency risk management on the example of the yuan-ruble currency pair. Under the conditions of consistent build-up of sanctions by Western countries against developing economies, the currencies of Russia and China are exposed to additional risks. Any trade restrictions, including customs duties, affect the structure of exports and imports, and, accordingly, the demand for one or another currency. The ruble and yuan are subject to constant external pressure, and their exchange rates against other currencies depend not only on the development of the economy, but also on the geopolitical situation. With the constant development of sanctions, new tools for currency risk management are needed. This determines the relevance of this research. It is assumed that if two currencies suffer equally due to sanctions, their fluctuations to other foreign currencies should go symmetrically. Consequently, there should be non-standard currency risk management within pairs of such currencies since conventional currency risk management tools are not applicable here. In addition, under the conditions of export restrictions, both China and Russia are becoming more and more interested in strengthening domestic trade relations and building a domestic system of exports and imports. Thus, balancing the yuan-ruble currency pair becomes even more relevant in these conditions. A large number of existing studies have examined the issues of currency risk management, including risk hedging. However, these studies do not take into account the geopolitical situation and are not designed to regulate a specific sub-sanctioned currency pair. The article offers the hypothesis that the change in the exchange rate of the yuan and the ruble relative to each other does not correlate with the change in the exchange rate of these currencies against the dollar and the euro. The proposed currency risk hedge measure is the establishment of a fixed cross rate in a given currency pair.