The mascot of digital yuan Photo: VCG

China on Tuesday proposed to expand cooperation on sovereign digital currency among member countries of the Shanghai Cooperation Organization (SCO). Experts said that the proposal will elevate the transaction efficiency among SCO members.  

In addition to the expanded cooperation on using sovereign digital currencies, the Chinese side also suggested the SCO to scale up local currency settlement between SCO members and promote the establishment of an SCO development bank.

The trade among SCO members can be expanded with higher efficiency through the increasing adoption of sovereign digital currency as enterprises can lower potential risks resulting from geopolitical factors and the fluctuation in the US dollar exchange rate, Wang Peng, a research fellow at the Beijing Academy of Social Sciences, told the Global Times on Wednesday. 

As a major SCO member, China has been implementing targeted efforts to boost the use of yuan in cross-border settlement. 

In January 2023, a cross-border trade center was established at China-SCO Local Economic and Trade Cooperation Demonstration Area (SCODA) in Qingdao, East China's Shandong Province, where enterprises can choose to settle their international trade with SCO members in the yuan. 

Lu Wei, a representative from SCODA, said in a statement sent to the Global Times that the trade center can effectively reduce companies' settlement cost while avoiding the risks incurred by frequent exchange rates turbulences. 

By the end of June, the trade center of SCODA has facilitated 24.29 billion yuan ($3.35 billion) worth of cross-border settlement. The center processed 3.84 billion yuan in cross-border financing using the yuan, with 1.25 billion yuan coming from overseas markets, according to SCODA.

SCODA also revealed that demonstration area will set an innovation lab targeting China's Cross-Border Interbank Payment System, aiming to expand the utility of the system among SCO members and the China-proposed Belt and Road Initiative while promote yuan internationalization.
 
Chinese enterprises are keen to pursue closer cooperation with their overseas business partners to promote use of digital yuan, Wang said, adding that the cooperation potential will also boost the opportunities for Chinese enterprises to expand overseas business. Wang noted that strengthened cooperation among SCO members will provide a platform for China to share its advanced technologies with more global partners. 

The Chinese yuan has a huge potential in its continuous internationalization amid the shift in the international monetary system to a multi-currency system as the yuan has achieved breakthroughs in international payments, global reserves, and cross-border settlements, according to a report by the China Securities. 

As China is set to continue digital currency development following the proposal, the launch of the multiple central bank digital currency bridge project could be further accelerated - a project designated to explore the application of central bank digital currencies in cross-border payments which will also drive up the potential demand for renovating the banking information system, according to a report from Tianfeng Securities. 

Yiwu, a hub of small goods in East China's Zhejiang Province with around 2.1 million enterprises connected to more than 230 countries and regions, launched 10 pilot measures targeting the use of digital yuan in March with a special focus to explore cross-border settlement with high-quality payment services, according to media reports.