SCO Eyes First Global Multilateral Security Bank

So why, given that array of financing initiatives already in place, would China be persisting with a SDB concept ten years after it first proposed such? Not least, also since there is even already an infrastructure and economic development-focused“Eurasian Development Bank” in Almaty, Kazakhstan, founded in 2006 by Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan.

And why, equivalently, would China be dangling a carrot to potential SDB member states of 2 billion renminbi (US$280 million) in free aid this year? There may be a few paradigm shift explanations, especially in today's more contested landscape than that of a decade ago.

One aspect relates to China's goals to internationalize finance and the renminbi. The NDB, for example, from the outset aimed to elevate non-dollar-based financing. By 2023, a decade after its founding, less than a quarter of lending is in local currencies.

Meantime, China's renewable energy investments in the Central Asian region are increasingly already being settled in renminbi, such that there is talk of an“electro-yuan” green electricity trade lighting up the sub-region.

That is, having launched the Belt and Road Initiative in Kazakhstan with a call for increased currency circulation, China is now grasping the potential of green transition to be a currency transition, too, ironically away from the greenback and toward the renminbi.

Joint bonds and integrated payment networks are also under discussion. A SDB with deep Chinese institutional roots may be well-placed to do work toward such regional development goals.

Not only may the SDB be a first non-dollar-denominated multilateral development bank, but it could also become the first-ever“security” financing development bank as well. The roots of this argument link to the origins of the SCO, which was founded in 1996 by the“Shanghai Five” – China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan – which sought to settle their border disputes after the Soviet Union's collapse.

In 2001, Uzbekistan joined and the SCO also adopted the Shanghai Convention on Combating Terrorism, Separatism and Extremes, colloquially known as the“three evils.”

Since then, India, Pakistan, Iran and Belarus have become SCO members, which is now a 10-member organization. Saudi Arabia, Egypt, Turkey, Myanmar, Sri Lanka and Cambodia have become official SCO dialogue partners, too.

Given the importance of security to the SCO's founding notion, and the recent announcement of four new security centers, an SDB may also go on to offer financing for initiatives that help to quell the grouping's identified“three evils.”

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Such a funding stream would be a first for a multilateral development bank. In contrast, the Articles of the Agreement of the World Bank emerging from the ashes of WWII itself explicitly prohibit financing of military-related items. An SDB that did so would thus certainly be ironic.

Eighty years on from Japan's surrender in WWII, that may be the somewhat perverse footnote arising from this year's SCO summit. Not only may an SDB mark a first non-dollar-denominated multilateral development bank, but it could also mark the founding of the first development bank that finances security-related initiatives within its mandate.

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. It would be unfortunate if the launch of a China-led“redback” era came with some trappings, too.

Lauren Johnston is director of the New South Economics . Dr Johnston holds a PhD in International Economics from Peking University and has worked for the World Bank, World Economic Forum and the University of Melbourne.

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