Member states seek more financial autonomy and localised credit by advancing an effort to fund regional growth using their national currencies, not the US dollar
A 10-nation security and economic bloc that includes China, Russia and Iran has accelerated efforts to launch a development bank, aiming to address the group’s growing infrastructure needs while challenging Western financial dominance.
However, the project faces headwinds as at least one key member may be less motivated than others to back the bank, according to an expert on the group, potentially complicating the path towards a final agreement.
In recent months, member states of the Shanghai Cooperation Organisation (SCO) have intensified multilateral consultations to hammer out specific details surrounding the joint lender.
Against the backdrop of growing demand for fundraising among members, they scheduled a flurry of meetings after SCO leaders reached an agreement in September to forge an intra-bloc financing framework.
In March, Beijing hosted the first consultation conference. The focus was primarily on shaping the architecture of the future bank, including capitalisation principles, institutional structure, and governance frameworks intended to ensure equal participation among member states.
Last month, at a subsequent conference in the Chinese city of Xian, Shaanxi province, SCO members deliberated on priority financing sectors, non-sovereign financing mechanisms, and the use of national currencies and alternative financial instruments to form the bank’s statutory capital, according to Kazinform, the main state news agency in Kazakhstan.
The latest round of talks took place on Thursday in Bishkek, the capital of Kyrgyzstan. They were co-chaired by China’s vice-minister of finance, Liao Min, and his counterpart in Kyrgyzstan.
Besides China, Russia, Iran, Kazakhstan and Kyrgyzstan, the SCO’s other full member states are India, Pakistan, Belarus, Tajikistan and Uzbekistan.
For Central Asian members in particular, the bank could become a financing source for infrastructure projects and a catalyst for economic growth, Kazinform reported, adding that the bank would serve China as a tool to expand its financial and economic influence.
Xi Jinping urges SCO summit members’ cooperation and the setting up of a development bank
In a statement at September’s summit, which took place in the provincial-level Chinese municipality of Tianjin, President Xi Jinping urged member states to establish the bank “as soon as possible” to strengthen security and economic ties.
However, creating a multilateral lender from scratch is a historically lengthy process.
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“Progress is now slowly under way,” cautioned Sohail Khan, a deputy secretary general for the SCO, at the Eurasian Economic Forum in Kazakhstan on Thursday, as reported by Azerbaijan’s Trend News Agency. He said the bloc plans to gradually increase the share of national currencies in mutual settlements, as well as intensify investment and banking cooperation.
The SCO development bank would represent fresh fruit in China’s efforts to improve global economic governance. China also spearheaded the founding of the Asian Infrastructure Investment Bank, which focuses on enhancing connectivity between members, and the New Development Bank a decade ago.
A Chinese scholar who has studied the SCO and Central Asian affairs for years said it was highly unlikely that the formal establishment of the bank would occur at the upcoming SCO summit in August, pointing to particular doubt over Russia’s motivation.
“Russia already anchors the Eurasian Development Bank,” he said, speaking on condition of anonymity. “Even though it agreed to the new SCO lender, Moscow is inherently disincentivised to actively spearhead a competing institution.”
Also, negotiating the SCO bank’s governance architecture presents significant challenges, with technical formulas such as capital-contribution ratios and the corresponding distribution of voting power expected to require prolonged negotiations, the scholar added.
Reference Link;- https://www.scmp.com/economy/global-economy/article/3355331/china-led-sco-bloc-looks-fast-track-plan-new-bank-would-rival-western-lenders