China urges use of digital currency in SCO

Aim for greater efficiency in trade, reduced risk from geopolitical factors

BEIJING:

China has put forward a proposal to expand cooperation on sovereign digital currency among member countries of the Shanghai Cooperation Organisation (SCO). The move is expected to enhance transaction efficiency among SCO members and facilitate increased trade.

In addition to the expansion of sovereign digital currency usage, China has suggested that the SCO should increase local currency settlement between member nations and promote the establishment of an SCO development bank.

The use of sovereign digital currencies can contribute to greater efficiency in trade among SCO members by reducing potential risks associated with geopolitical factors and fluctuations in the US dollar exchange rate, explained Wang Peng, a research fellow at the Beijing Academy of Social Sciences.

As a major member of the SCO, China has been actively working to boost the use of the yuan in cross-border settlements. In January 2023, a cross-border trade centre was established at the China-SCO Local Economic and Trade Cooperation Demonstration Area (SCODA). This centre allows enterprises to settle their international trade with SCO members in yuan, effectively reducing settlement costs and mitigating risks resulting from exchange rate fluctuations.

According to Lu Wei, a representative from SCODA, the trade centre facilitated cross-border settlements worth 24.29 billion yuan ($3.35 billion) by the end of June. The centre has also processed 3.84 billion yuan in cross-border financing using the yuan, with 1.25 billion yuan sourced from overseas markets. SCODA plans to establish an innovation lab focused on China’s Cross-Border Interbank Payment System.

Published in The Express Tribune, July 7^th, 2023.

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