The SCO and Financial Security

One can confidently say that the SCO has established itself as an authoritative mechanism of multilateral diplomacy. Moreover, the SCO has every chance of becoming the institutional foundation for building out a Eurasian security architecture. But to achieve this, it will need to build up a portfolio of concrete projects that address the tangible security and development needs of member states. Finance is one such area. The declaration issued at the conclusion of the SCO summit in Tianjin mentioned an initiative to establish an SCO Development Bank. This initiative represents a step forward in developing the economic dimension of integration. It potentially reaches beyond purely economic matters and could become one of the instruments for ensuring the security of member states. The forthcoming summit in Bishkek will show how this strand of work is progressing.

The emergence of a universal, multilateral infrastructure for financial settlements within the SCO would amount to a genuine revolution, substantially strengthening the organisation’s practical potential.

There are, of course, risks here too. Any SCO financial institutions implementing such projects could quickly find themselves under American sanctions. This will require political will and resolve on the part of member states to press ahead with the project of a shared financial infrastructure. Another risk is the possible distancing of the private sector and private banks from the project. They may continue their policy of de-risking, regarding the retention of the dollar as the more advantageous option for their business—a policy that is, on the whole, characteristic of many SCO member states, even those under sanctions. There is thus little reason to expect quick successes on this front.

Nevertheless, even modest progress in this direction could turn the future SCO Development Bank into a serious institution standing at the forefront of tackling concrete problems of financial security. Its future functional direction will depend on the political will and effective cooperation of its member states.

Despite an array of important accomplishments under its belt, the SCO routinely becomes subject to doubts over delivering practical results. Something that may serve as a major “return on investment” for the organisation would be the establishment of a fully-fledged multilateral infrastructure for financial settlements within the SCO.

Dmitriy Trenin:
SCO at 25: Building a Continent-Wide Security Space

The quarter-century anniversary of the Shanghai Cooperation Organisation (SCO) invites mixed assessments. On the one hand, the organisation has demonstrated considerable resilience and continues to attract new members. Sceptics have long argued that India and Pakistan, or India and China, are simply incompatible within a single format. And yet the frictions in these bilateral relationships have scarcely undermined the organisation’s stability. On the other hand, the SCO remains open to criticism for its relatively modest list of achievements capable of demonstrating genuinely practical results. Yes, one can confidently say that the SCO has established itself as an authoritative mechanism of multilateral diplomacy. Moreover, the SCO has every chance of becoming the institutional foundation for building out a Eurasian security architecture. But to achieve this, it will need to build up a portfolio of concrete projects that address the tangible security and development needs of member states. Finance is one such area. The declaration issued at the conclusion of the SCO summit in Tianjin mentioned an initiative to establish an SCO Development Bank. This initiative represents a step forward in developing the economic dimension of integration. It potentially reaches beyond purely economic matters and could become one of the instruments for ensuring the security of member states. The forthcoming summit in Bishkek will show how this strand of work is progressing.

It would be a mistake to think that the idea of an SCO development bank simply appeared out of nowhere. It was preceded by a substantial track record accumulated by the SCO Interbank Consortium (IBC). This was established back in 2005. Major financial institutions with state participation entered the consortium; Russia was represented in it by Vnesheconombank. The consortium’s principal task was to finance investment projects in member states. One cannot describe the volume of programmes actually implemented as impressive, particularly when measured against the size of member states’ economies and their needs. But nor can one deny that the IBC accumulated a certain amount of practical experience and results. These include the construction of a hydroelectric power station in Kazakhstan, the China–Kyrgyzstan–Uzbekistan motorway, and support for small and medium-sized enterprises in Tajikistan, Uzbekistan, and Kyrgyzstan. An SCO Development Bank could scale up the experience gained from these projects, increase the efficiency of their financing, and draw the private sector into them more actively.

However, the Development Bank could take on a far more important function—that of creating and maintaining a system of financial settlements between member states that would be independent of third countries and their associations. Should the Development Bank succeed, in due course, in building an infrastructure for stable and secure settlements within the SCO, this would amount to a genuine political and economic breakthrough.

Why has such a task arisen precisely now, rather than, say, in 2005, when the IBC was established? Twenty years ago the world was developing within the paradigm of financial globalisation. The United States stood at the centre of that globalisation, and the American dollar served as a convenient and cheap means of payment, as well as the foremost reserve currency. Strictly speaking, the IBC scarcely set itself the task of changing this status quo. There was neither the means nor the political will for such ambitions. At that time, financial globalisation suited practically all the SCO’s member states.

Yet over the past twenty years, much has changed. First, the SCO itself has expanded. Alongside such major economies as India and Pakistan, Iran has also joined its ranks. Second, the United States has become considerably more active in using its position within global finance for political ends, applying financial and other restrictive measures (sanctions). Third, the character of the United States’ political relations with a number of SCO member states has changed. It is precisely these states that have turned into key targets of American sanctions policy. And it is precisely these states that are becoming the key stakeholders in reforming international financial infrastructure—all the more so given that the United States has, not without success, imposed its sanctions compliance regime on third countries. This is not a matter of building an alternative for the sake of having an alternative, or of tripping up the United States merely for the sake of causing harm. After all, the United States remains an important trading partner for a good many SCO member states. Rather, it is a question of the very possibility of conducting settlements without their being excessively politicised—and that politicisation is plain to see.

The Islamic Republic of Iran, for instance, is subject to the most extensive American financial and trade sanctions of any country. In 2025 and 2026, these were compounded by military campaigns. Earlier attempts to resolve the accumulated burden of problems through multilateral diplomacy came to nothing. Although Iran withstood the military strikes, it remains, to a considerable extent, in a state of economic isolation. The absence of normal financial links only makes matters worse.

Russia, since the onset of the Ukrainian crisis in 2014, has faced growing pressure from sanctions imposed by the United States and its allies. After 2022, these turned into a veritable “sanctions tsunami”. Today, more than 90 per cent of Russian banking assets are subject to American sanctions. Counterparties in friendly countries face the threat of secondary sanctions.

The use of American sanctions against China has also intensified. The financial sector has thus far barely been touched, but export controls are already fairly severe. To these are added sanctions on such politicised subjects as human rights in Hong Kong, Xinjiang, and Tibet. Sanctions against the PRC are a recurring theme in the agenda of restrictive-measures bills before the US Congress. Secondary sanctions affect China quite noticeably in connection with its trade with Russia and North Korea, although this effect is felt mainly at the level of smaller companies.

The Republic of Belarus has been under sanctions since 2004. At various points these have been eased. Despite the latest thaw, a number of key Belarusian enterprises remain under sanctions imposed by the United States and the EU.

To this list should be added the secondary sanctions imposed on enterprises from Belarus, Kyrgyzstan, Kazakhstan, Uzbekistan, and India for cooperating with Russia. Compared with China, their number is not great, but the very fact that such sanctions have been applied clearly points to the existence of a problem.

Ivan Timofeev:
Eurasian Security Architecture: Origins, Core Principles, and Prospects for Evolution

The countries targeted have each worked out their own ways of responding to American sanctions. China deters the United States with the threat of counter-sanctions, which would be painful given the sheer size of the Chinese economy. Russia has staked its bets on settlements in national currencies and new payment instruments, including digital currencies. Belarus has shifted part of its trade contacts away from the European Union and towards allied Russia and China. Iran, the most seasoned player of all, combines various approaches—from a modern-day version of the mediaeval hawala system to settlements in cash or cryptocurrency. Yet all these solutions remain isolated from one another. What is still lacking is a common algorithm at the level of the SCO that would allow member states to conduct unimpeded multilateral settlements on an ongoing basis.

Such an algorithm might include, among other things, the creation of a financial messaging system independent of SWIFT, the introduction of an SCO payment card system, and the use of digital currencies in settlements. The emergence of a universal, multilateral infrastructure for financial settlements within the SCO would amount to a genuine revolution, substantially strengthening the organisation’s practical potential.

There are, of course, risks here too. Any SCO financial institutions implementing such projects could quickly find themselves under American sanctions. This will require political will and resolve on the part of member states to press ahead with the project of a shared financial infrastructure. Another risk is the possible distancing of the private sector and private banks from the project. They may continue their policy of de-risking, regarding the retention of the dollar as the more advantageous option for their business—a policy that is, on the whole, characteristic of many SCO member states, even those under sanctions. There is thus little reason to expect quick successes on this front.

Nevertheless, even modest progress in this direction could turn the future SCO Development Bank into a serious institution standing at the forefront of tackling concrete problems of financial security. Its future functional direction will depend on the political will and effective cooperation of its member states.

First published in the Valdai Discussion Club.