Xi's new Cold War bank will combat "weaponised US dollar hegemony"
SCO Development Bank to help China and allies thwart US financial sanctions.
Xi Jinping hopes the launch of a new multilateral development bank will enable China and its economic allies to contend against the “weaponisation of the dollar” by Washington, should Cold War-style tensions with the US further worsen.
The Shanghai Cooperation Organisation (SCO) wrapped up its two-day heads-of-state summit in Tianjin on 1 September, just in time for the staging of a massive military parade by Beijing to commemorate the 80th anniversary of the end of the Second World War.
Observers both within and outside of China pointed to the Tianjin Summit as signalling a critical shift in the world’s geopolitical alignments in the wake of Trump’s Liberation Day tariffs, as well as the further cementing of ties between the BRICS economies.
Especially noteworthy was the display of close amity between Xi Jinping, Narendra Modi and Vladimir Putin - as the triumvirate of state leaders presiding over the world’s second-largest economy, the world’s most populous nation, and America's primary thermonuclear rival during the 20th century Cold War.
For Trump's detractors, the SCO summit was proof-positive that his tariff policies have had severe adverse consequences for Washington's network of geopolitical alliances.
They’ve sent America’s stalwart ally of India into the arms of China as a more amenable economic and trade partner, despite the frequent flaring up of tensions between New Delhi and Beijing over recent years.
The landmark display of collegial affinity between the core BRICS leaders was abruptly followed by a spectacular military parade held in Beijing on 3 September, to commemorate the 80th anniversary of the end of the Second Sino-Japanese War.
Observers- both sympathetic and cynical - may well have watched this unfolding of events with a renewed appreciation of Beijing’s penchant for diplomatic messaging, by means of both courtesy protocols and ceremonial display.
China's new Cold War Bank
In addition to cosy photo opportunities heralding seismic shifts in geopolitical alignments, the Tianjin summit also produced a raft of initiatives to shore up the economic cohesion of SCO members.
These included:
The formulation of the 10-year SCO strategic plan.
The establishment of three “platforms for cooperation” between China and SCO members, in the areas of energy, green industry and the digital economy.
The establishment of “three cooperative centres” in the areas of scientific and technological innovation, tertiary education and vocational technical training, and
The formulation of six “high-quality development action plans,” with a focus on “new quality factors of production + trade and investment + industrial chain cooperation.”
In terms of the geopolitics of international finance, however, no doubt the most significant institutional outcome from the Tianjin summit will be the establishment of the Shanghai Cooperation Organisation Development Bank.
Beijing first called for the establishment of the SCO Development Bank in 2010, with the goal of “expediting regional trade and settlement the currencies of member-states.”
15 years later, the need for a new development bank under the sway of BRICS instead of Washington has emerged as a key priority for Beijing, following the worsening of economic and geopolitical tensions with the US and mounting concerns over the “weaponisation of the dollar."
In a speech delivered on 1 September at the close of the summit, Xi Jinping called for “the establishment the SCO Development Bank as quickly as possible,” with the goal of “providing vigorous support to security cooperation and economic cooperation between member-states.”
“The establishment of the SCO Development Bank is a strategic measure for dealing with current global geopolitical shifts and driving regional economic integration," Xi said.
Pang Ming (庞溟), a senior researcher at the National Institute for Finance and Development (NIFD), said to Chinese state-owned media that the key goal of the SCO Development Bank is to overcome the geopolitical risks for China’s participation in the international financial system ("成立上合组织开发银行，谁将受益?").
“Under the new conditions of international geopolitics and global economic governance, the SCO Development Bank will provide a vigorous support and effective guarantee for continually deepening security cooperation and economic and trade cooperation between member-states,” Pang said.
“With the current Ukraine crisis ongoing, and the uncertainties of US economic and trade policy further worsening, the establishment of the SCO Development Bank can help SCO members to pool their resources to deal with any risk or turmoil that emerges on international financial markets.”
Combating US dollar weaponisation
In its role as a development lender, SCO Development Bank’s explicit mandate will be the provision of stable, long-term funding to SCO member-states, most of whom are emerging economies with acute infrastructure and energy needs.
One of Beijing's core strategic goals, however, will be using the development bank as a platform to combat Washington’s “weaponisation” of the US dollar as the international reserve currency, following the application of financial sanctions against Russia and Iran.
This was made readily apparent by the fact that one of the stated objectives for the SCO Development Bank when it was first proposed 15 years ago was "expediting trade and settlement in the currencies of member-states."
“Against the background of the great game of nations further intensifying, the US and the West have continually stepped up financial sanctions against Russia, and used the weaponisation of finance to make the world see the potential risk of excessive dependence on the Western financial system,” wrote Jiao Jian (焦健) in an opinion piece published by Chinese state media ("中国为何推动成立上合组织开发银行?").
“The SCO Development Bank will help to overcome US and Western financial hegemony, and increase the SCO’s influence in global economic governance.”
Another core goal for SCO Development Bank will be driving greater economic integration between China and SCO members, creating a firmer bulwark against the adverse impacts of further trade protectionism from Washington.
“As of July, China had made investments of more than US$84 billion in other SCO nations, and at present, Chinese enterprises have established more than 3000 subsidiaries in SCO member-states,” Jiao Jian wrote.
"The establishment of the SCO Development Bank will help to expand the scale of cooperation between China and SCO members, so that their resilience continually strengthens."