SCO Summit Signals Potential for First Multilateral Security Growth Bank, Challenging Dollar Dominance
QINGDAO, CHINA – The Shanghai Cooperation Organisation (SCO) summit this week is spotlighting discussions that could lead to the establishment of the world’s first multilateral development bank (MDB) financed in non-dollar currencies and with a mandate to fund security-related initiatives, a move that could reshape global development finance and challenge the longstanding dominance of the U.S. dollar.
Founded in 1996 by China, Russia, Kazakhstan, Kyrgyzstan, and tajikistan – initially known as the “Shanghai Five” - the SCO has expanded to include Uzbekistan, India, Pakistan, Iran, Belarus, and recently welcomed Saudi Arabia, Egypt, Turkey, Myanmar, Sri Lanka, and Cambodia as dialog partners. rooted in resolving post-Soviet border disputes, the association quickly adopted a security focus, enshrined in the 2001 Shanghai Convention on Combating Terrorism, Separatism and Extremism – often referred to as the “three evils.”
now, with deep Chinese institutional backing, the potential SCO Development Bank (SDB) is being positioned as a counterweight to existing institutions like the World Bank, which explicitly prohibits financing for military-related projects. Currently,lending by the New Development Bank (NDB),established by BRICS nations,is less then 25% denominated in local currencies,highlighting a continued reliance on dollar-based financing.
However, China is actively promoting alternatives. Renewable energy investments in Central Asia are increasingly settled in renminbi,fostering discussion of a “electro-yuan” driven green electricity trade. This builds on the Belt and Road Initiative’s initial call for increased currency circulation, with China now leveraging the green transition to advance the renminbi’s role. discussions are also underway regarding joint bonds and integrated payment networks.
“China is grasping the potential of green transition to be a currency transition, too, ironically away from the greenback and toward the renminbi,” notes Lauren Johnston, director of New South Economics, who holds a PhD in International economics from Peking University and has previously worked with the World Bank and World Economic Forum.The SDB’s potential security focus stems directly from the SCO’s founding principles.Recent announcements of four new security centers suggest the bank could offer financing for initiatives aimed at countering the organization’s identified “three evils,” a funding stream unprecedented for a multilateral development bank.
while the prospect of a China-led “redback” era raises concerns, Johnston emphasizes the importance of learning from history.”We should all hope that SCO members heed the lessons of WWII, and the era of relatively peaceful prosperity that followed is also embedded in any future SDB,” she writes.