On February 24, 2022, Russian President Vladimir Putin announced that he had launched a “special military operation” against Ukraine. Then, the West began to impose sanctions that affected many sectors, especially the financial system, by targeting the Moscow administration. These sanctions have also affected Russia’s relationship with its main trading partners. In this context, the establishment of mechanisms to trade without dollars in organizations of which Russia is a member has begun to be discussed. One of the international organizations where these debates take place is the Shanghai Cooperation Organization (SCO). As a matter of fact, this mechanism came to the fore as one of the most important issues discussed at the SCO Leaders’ Summit held in Samarkand, the ancient city of Uzbekistan, on September 15-16, 2022. In other words, one of the important decisions taken at the summit was the expansion of trade with the use of national currencies of the member states.
The creation of a roadmap for the use of national currencies in trade and the development of alternative payment and settlement systems are issues that the SCO has been working on in recent years. As a matter of fact, the draft roadmap for increasing the share of national currencies in mutual agreements was announced at the SCO Summit held in Qingdao city in June 2018 with the initiative of Kazakhstan.[1] At the meeting of the SCO Leaders Council held via videoconference on 10 November 2020, the use of national currencies was discussed, and it was decided to form a special expert group for this purpose.[2] At the Samarkand Summit, the leaders of the member states approved the proposed roadmap to increase trade using national currencies.[3]
At the summit, Russian President Vladimir Putin emphasized that the share of national currencies in the organization has increased.[4] As a matter of fact, there has been an increase in payments made in national currencies among SCO member countries in recent years, without using dollars. For example, in the first period of 2022, the share of trade between Russia and China using national currencies reached 27.5% of the total trade volume.[5]
As mentioned above, the use of national currencies in trade relations between SCO members was proposed by Kazakhstan in 2009.[6] Even the development of a common currency was added to this proposal. However, at that time, Russia stated that it was too early to create a single supranational currency within the framework of the SCO. In addition, Russian officials emphasized that the economies of the SCO countries are different from each other.[7] Therefore, calls have been made in the past to adopt a common currency from Astana; however, the Moscow administration approached this proposal with a distance. The Kremlin’s current pursuit of common currency development and at least advocating for trade in national currencies is an effort to reduce the impact of sanctions.
On the other hand, the Beijing administration, which has serious problems in its relations with Washington due to the visit of the Speaker of the United States (US) House of Representatives Nancy Pelosi to Taiwan, advocates giving up the dollar in the SCO. Similarly, it is known that Iran, which has been subjected to the pressure of sanctions by the US, is also willing to seek what can be described as de-dollarization. It is seen that India, on the other hand, decided to use national currencies in trade with Russia, despite its cooperation with the US and England in 2022 Considering that the trade volume between the two countries reached 11.5 billion dollars in the first half, the said development is not only for Moscow;[8] it can be stated that it is also of great importance for New Delhi.
President of China Xi Jinping, on the other hand, avoids making clear statements about the dependence on the dollar. However, it should be emphasized that the Beijing administration has taken various steps to create a regional currency. Because, although Beijing does not try to make the yuan an international currency, it is taking steps to transform the yuan into a strong regional currency through the organizations it is a member of. As a matter of fact, the People’s Bank of China signed a cooperation agreement with the National Bank of Kazakhstan to establish yuan-denominated clearing mechanisms in Kazakhstan.[9]
Experts argue that smaller Chinese financial institutions, which are less dependent on the dollar, will play a critical role in de-dollarization processes. Indeed, such banks are not much affected by the sanctions imposed by the West. For example, in May 2022, Harbin Bank announced the “One Hundred Measures” document aimed at developing more financial relations with Russia. [10]Russian experts suggest that Chinese banks can help Moscow by providing cash yuan to Russia. In other words, with the help of payments made in yuan, Moscow can avoid the negative consequences of embargoes to some extent. However, it is also possible that this situation will lead Western states to take tough sanctions against China.
As a result, the sanctions adversely affected Russia’s relations with its trading partners. Therefore, the establishment of mechanisms for the development of commercial relations without dollars has come to the fore in organizations of which Russia is a member. In this regard, it is possible to state that Moscow received support from New Delhi, Beijing and Tehran. However, it should be noted that the process will not progress as fast as the Kremlin expected.
[1] “Эксперты ШОС обсудили дальнейшие перспективы развития взаимных расчетов своих стран в национальных валютах”, Shankhayskoy Organizatsii Sotrudnichestva, http://rus.sectsco.org/news/20210802/770813.html, (Date of Accession: 26.09.2022).
[2]“On the prospects for the development of mutual settlements of the SCO member states in national currencies”, Shankhayskoy Organizatsii Sotrudnichestva, http://rus.sectsco.org/news/20210331/737219.html,(Date of Accession: 26.09.2022).
[3]“The heads of the SCO countries approved a roadmap for the growth of the share of national currencies in settlements”, RIA, https://ria.ru/20220916/shos-1817281423.html, (Date of Accession: 26.09.2022).
[4]“Vladimir Putin: The share of settlements in the national currencies of the SCO countries is growing”, RG , https://rg.ru/2022/09/16/vladimir-putin-dolia-raschetov-v-nacvaliutah-stran-shos-rastet.html , (Date of Accession: 26.09.2022).
[5]“Putin noted the growth in the share of mutual settlements between Russia and China in national currencies”, RIA, https://ria.ru/20220915/valyuta-1817022800.html, (Date of Accession: 09/26/2022).
[6]“Nazarbayev invited the SCO countries to create a single currency”, Lenta, https://lenta.ru/news/2009/06/16/unite/, (Date of Accession: 26.09.2022).
[7] Ibid.
[8]“The trade turnover between Russia and India in the first half of 2022 grew by almost 120%”, TASS, https://tass.ru/ekonomika/15739091, (Date of Accession: 26.09.2022).
[9]“China and Kazakhstan signed a memorandum of cooperation on clearing settlements in yuan”, Sputnik , https://ru.sputnik.kz/20220920/kitay-i-kazakhstan-podpisali-memorandum-o-sotrudnichestve-po-kliringovym-raschetam-v -yuanyakh-27724412.html , (Date of Accession: 26.09.2022).
[10]“Udar po dollaru: SCO countries decided to settle mainly in national currencies”, Voyennoye Obozreniye, https://topwar.ru/202259-udar-po-dollaru-strany-shos-reshili-rasschityvatsja-v-osnovnom-nacionalnymi-valjutami. html, (Date of Accession: 26.09.2022).
