Expanding Financial Cooperation for More SCO Development Momentum
After nearly 20 years of development, the Shanghai Cooperation Organization (SCO) has become a regional organization covering the most area and the greatest population in the world. In the long run, the financial sector will be a crucial area for cooperation among SCO member states.
At the recently concluded SCO Qingdao summit, participating countries fully tapped into the potential of the existing SCO cooperation mechanisms such as the SCO Inter-bank Consortium and the SCO Development Fund by further deepening cooperation. By expanding the scope of local-currency settlement, carrying out pragmatic currency swap cooperation, learning from each other about establishing international financial centers, and strengthening cooperation in fighting money laundering and terrorism financing, they have made positive progress in maintaining regional financial stability and improving the new international financial order.
Financial Cooperation Necessary
With the expansion of development of trade and investment relations between member states and the addition of India and Pakistan to the SCO, investment cooperation between China and other SCO member states in tourism, culture and finance has spiked and become a long-lasting development trend.
Strengthening financial cooperation is tremendously significant to the development of the SCO for a variety of reasons.
First, it is an inevitable trend to promote SCO economic and trade cooperation and deepen regional economic transformation, upgrading and integration.
Second, it will play an important role in promoting the implementation of the Belt and Road Initiative proposed by China.
Third, promoting local-currency settlement cooperation between SCO member states can effectively hedge exchange rate risk and promote the RMB’s global status.
Fourth, SCO member countries should help and learn from each other about combating money laundering and terrorism financing, establishing regional international financial centers and jointly promoting regional economic and financial development.
Fifth, it is conducive to maintaining stability of the financial sector across the entire region, promoting coordinated and consistent policy to prevent potential crises, fostering cooperation in reforming the new international financial order, and strengthening the cohesion and solidarity of the SCO.
Pragmatic Cooperation in Currency Exchange
Promoting local-currency settlement and currency exchange is an important facet of SCO financial cooperation.
Trade between SCO member states is large-scale and frequent. To reduce transaction costs and avoid risk, member states have been engaged in several rounds of consultation to strengthen usage of financial instruments, improve financial cooperation and help bank card clearing institutions and payment agencies carry out cross-border business.
In recent years, the People’s Bank of China has signed bilateral local-currency swap agreements with several countries and regions under the SCO framework including Russia, Kyrgyzstan, Kazakhstan and other neighboring countries.
In August 2002, local-currency settlement business was first launched in bilateral trade between China and Russia. By 2009, transaction volume had increased 67 times over. China has also carried out direct or registered currency transactions with Kazakhstan and other countries to facilitate its trade and investment cooperation with those countries.
During the SCO Qingdao summit, participants discussed further promoting local-currency settlement in bilateral trade as well as how to gradually expand it to general trade and non-trade areas. 
A stone tablet in front of the headquarters of the Asian Infrastructure Investment Bank (AIIB) in Beijing. Founded in 2016, AIIB is the world’s first multilateral financial institution established under the proposal of China. by Li Xin/XinhuaFighting Money Laundering and Terrorism Financing
Combating terrorism is an important duty and mission of the SCO. Strengthening cooperation in fighting money laundering and terrorism financing is another important sector for financial cooperation among SCO member states.
On October 6, 2004, the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) was launched in Moscow by China, Russia, Belarus, Kazakhstan, Tajikistan and Kyrgyzstan.
Subsequently, Uzbekistan, Turkmenistan and India also joined the group. Observer status has been granted to 15 countries and 20 international organizations.
With aims to reduce the threat of international terrorism, ensure transparency, reliability and security of capital flows, integrate into the international financial system and intensify the fight against money laundering and terrorism financing, EAG has become an important platform for non-traditional security cooperation within the SCO framework.
During the SCO Qingdao summit, participants also discussed how to strengthen cooperation in establishing international financial centers in the region. The Chinese government has explicitly proposed making Shanghai into an international financial hub by 2020 to match China’s economic strength and the RMB’s global status.
Russia’s Moscow and Kazakhstan’s Astana have also desired to become international financial centers. In addition, Pakistan’s Karachi and India’s Mumbai both intend to expand the current construction of international financial centers. During the process, countries in the region could learn from each other and provide greater support for development of the regional economy.
Improving the New International Financial Order
Alongside the development and expansion of the SCO, greater cooperation in preventing and reducing the impact of the financial crisis to the regional economy and maintaining financial stability in the region and even the world has become increasingly important for SCO financial institutions.
Organizations including the Asian Infrastructure Investment Bank, BRICS New Development Bank and SCO Development Bank will use currency swap and other innovative financial instruments to enhance the development of regional transport, trade and investment facilitation while coordinating national development strategies of member countries.
Considering the trend of globalization and regional economic integration, the SCO, as an international organization of developing countries, will see greater opportunities as well as challenges in the future and has already shouldered important responsibilities in promoting global economic growth, financial stability, trade reform and financial regulation formulation. Therefore, further cooperation between member states is needed to establish a healthier international economic and financial order.
At the SCO Qingdao summit, under the guidance of the “Shanghai Spirit,” participating countries examined dual channels of security and economic cooperation while crafting a new model of regional cooperation and a community with shared future. For the long run, financial cooperation under the SCO framework will inject continuous momentum for the development of the organization.
The author is deputy secretary-general of the Center for Belt and Road Initiative Studies at the Chinese Academy of Social Sciences.