BEIJING: China has invited member countries of the Shanghai Cooperation Organization (SCO) to expand cooperation on sovereign digital currency.
Beijing has also recommended the SCO scale up local currency settlement between SCO members and support the setting up of an SCO development bank, in addition to the extended cooperation on the use of sovereign digital currencies.
Experts anticipated that the proposal would increase the members of SCO’s transaction efficiency.
According to Wang Peng, a research fellow at the Beijing Academy of Social Sciences, the adoption of sovereign digital currency will help businesses reduce potential risks brought on by geopolitical factors and fluctuations in the US dollar exchange rate, which will increase the efficiency with which trade between SCO members is expanded.
China, a significant SCO member, has been focusing on increasing the usage of yuan in cross-border settlement. A cross-border trade hub where businesses can choose to settle their international commerce with SCO members in the yuan was built in January 2023 in the China-SCO Local Economic and Trade Cooperation Demonstration Area (SCODA) in Qingdao, East China’s Shandong Province.
In a statement, a SCODA spokesman Lu Wei, said that the trade center can efficiently lower enterprises’ settlement costs while minimizing risks associated with frequent exchange rate turbulences, according to Global Times.
By the end of June, the SCODA trade center had handled cross-border settlements worth $3.35 billion, or 24.29 billion yuan. According to SCODA, the center handled 3.84 billion yuan in cross-border funding utilizing the yuan, with 1.25 billion yuan coming from foreign markets.
According to Wang, Chinese businesses are eager to work more closely with their international partners to encourage the usage of the digital yuan. Wang also noted that the possibilities for this kind of cooperation would increase the chances for Chinese businesses to grow their international clientele. A venue for China to exchange its cutting-edge technologies with more international partners will be provided by the SCO members’ stronger cooperation, according to Wang.
Chinese Yuan
According to a report by China Securities, the Chinese yuan has enormous potential for continued internationalization as the international monetary system transitions to a multi-currency system due to the yuan’s successes in cross-border settlements, global reserves, and international payments.
Tianfeng Securities said in a report that the launch of the multiple central bank digital currency bridge project, a project intended to explore the application of central bank digital currencies in cross-border payments, could be accelerated as China is expected to continue developing digital currencies due to the proposal. This could increase the potential demand for updating the banking information system.
Yiwu, a hub of small goods in East China’s Zhejiang Province with around 2.1 million enterprises connected to more than 230 regions and countries, launched ten pilot measures targeting digital yuan in March, focusing on exploring cross-border settlement with high-quality payment services.
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