BEIJING: China has put forth a proposal to enhance cooperation on sovereign digital currency among member countries of the Shanghai Cooperation Organization (SCO). This initiative aims to improve transaction efficiency and elevate trade among SCO members.
In addition to expanding cooperation on the use of sovereign digital currencies, China has suggested scaling up local currency settlement between SCO members and establishing an SCO development bank. These measures are expected to bolster trade efficiency by mitigating potential risks arising from geopolitical factors and fluctuations in the US dollar exchange rate.
Wang Peng, a research fellow at the Beijing Academy of Social Sciences, highlighted that the adoption of sovereign digital currency would allow enterprises to lower risks and enhance trade efficiency. He emphasized that increased adoption of the digital currency would facilitate trade expansion among SCO members.
China, being a major SCO member, has been actively implementing targeted efforts to promote the use of the yuan in cross-border settlement. In January 2023, a cross-border trade center was established at the China-SCO Local Economic and Trade Cooperation Demonstration Area (SCODA) in Qingdao, Shandong Province. This center enables enterprises to settle their international trade with SCO members using the yuan.
Lu Wei, a representative from SCODA, stated that the trade center has effectively reduced settlement costs for companies while avoiding risks associated with frequent exchange rate fluctuations. According to SCODA, by the end of June, the trade center facilitated cross-border settlements worth 24.29 billion yuan ($3.35 billion), with 3.84 billion yuan in cross-border financing processed using the yuan, including 1.25 billion yuan from overseas markets.
SCODA also revealed plans to establish an innovation lab targeting China’s Cross-Border Interbank Payment System, aiming to expand its utility among SCO members and the China-proposed Belt and Road Initiative while promoting yuan internationalization.
Wang noted that Chinese enterprises are enthusiastic about closer cooperation with their overseas partners to promote the use of digital yuan. This collaboration potential will create opportunities for Chinese businesses to expand their overseas operations while facilitating the sharing of advanced technologies with global partners.
According to a report by China Securities, the continuous internationalization of the Chinese yuan holds significant potential as the international monetary system shifts toward a multi-currency system. The yuan has achieved notable breakthroughs in international payments, global reserves, and cross-border settlements.
As China continues its digital currency development following the proposal, the launch of the multiple central bank digital currency bridge project is expected to accelerate. This project aims to explore the application of central bank digital currencies in cross-border payments and will drive the demand for renovating the banking information system, according to a report from Tianfeng Securities.
Yiwu, a hub of small goods in Zhejiang Province, launched ten pilot measures in March to promote the use of the digital yuan, with a particular focus on exploring cross-border settlement with high-quality payment services. With over 2.1 million enterprises connected to more than 230 countries and regions, Yiwu’s initiatives contribute to the broader adoption and utilization of the digital yuan.
The proposal for expanded cooperation on sovereign digital currency within the SCO highlights China’s commitment to fostering stronger economic ties and leveraging its digital currency advancements for the benefit of member nations.
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