Finance Minister Siluanov: The SCO Will Create a Depository to Replace Euroclear and Clearstream

As reported by Izvestia

On 11 September, Izvestia interviewed Russian Finance Minister Anton Siluanov who revealed a move by China and Russia many have anticipated since the SMO sanctions were levied in 2022—their own system that bypasses that of the West. The interview’s results were then made into the following article that begins with Izvestia’s synopsis and then continues:

To make a contribution: the SCO will create a depository to replace Euroclear and Clearstream

What other tasks do the members of the organization assign to the future Development Bank?

Russians will again be able to freely invest in foreign assets, and foreign investors will be able to finance projects in Russia: the SCO countries will create a depository to replace Euroclear and Clearstream. The new Development Bank of the Shanghai Cooperation Organization should take over this function, Finance Minister Anton Siluanov told Izvestia. Russia and China are already actively engaged in developing the concept of the SCO bank. The parties touched upon its key functions at the WEF, and will discuss them in more detail at a meeting of the financial dialogue this fall, the minister said. How this will reduce dependence on Western infrastructure and whether there are any risks is discussed in the Izvestia article.

How the SCO Development Bank will work

Following the recent SCO summit in China, many key decisions were made. Among them is the establishment of the SCO Development Bank. Russia and China have taken an active role in this. After the summit, the parties held large-scale bilateral talks in Beijing. The discussion of topical issues, including the SCO Development Bank, continued at the Eastern Economic Forum, at the level of the Ministry of Finance, Anton Siluanov, head of the Russian Finance Ministry, told Izvestia.

According to him, "we need to have our own independent payment infrastructure. This is especially important against the background of sanctions, when the financial channels of the West become inaccessible not only to Russia, but also to other partners.” In particular, therefore, according to the minister, the issue of creating an independent depository on the basis of the SCO bank is also being discussed.

“We would like this bank, perhaps based on it or it, to create opportunities for our investors in our countries to be able to freely buy and sell securities in any country. That is, to perform such an independent depository function in its own way. This topic has also been discussed with our Chinese partners," Siluanov said.

For more than three years, Russian investors have been trying to regain control of foreign securities and unpaid earnings. Due to Western sanctions, most of the assets have been blocked in the largest European depositories, Euroclear and Clearstream, since 2022. Therefore, investments for Russians have become very risky. According to independent expert Andrey Barkhota, through the SCO Development Bank, it will be possible to finance investment projects in the organization's countries, as well as provide their citizens and companies with financial market services that they do not have for one reason or another.

Thus, the SCO Development Bank can actually become a real alternative to European depositories. However, it is too early to say that this is how it will work. There are still obstacles to the growth of investments in securities of foreign issuers through the SCO Bank's depository. Among them are the high profitability of ruble-denominated securities, as well as an ambiguous forecast for quotations of securities denominated in foreign currency, the expert draws attention to. In addition, there is a relative risk of asset freezing, as foreign securities will be issued and accounted for outside our country, which means that settlements will take place there, says independent financial adviser Anna Usenko. But, according to her, there is certainly potential.

"The SCO can become a tool for seamless trade in foreign securities between countries that sign an agreement," the expert says.

The question is also to what extent the Asian market (the SCO countries mainly represent this region) will be able to meet investors' expectations.

Siluanov told Izvestia that Moscow and Beijing have already agreed to discuss all these aspects in more detail at the upcoming meeting of the Russian-Chinese financial dialogue this fall. This mechanism has been in operation since 2006, with representatives from the Ministries of Finance, the Central Bank, and commercial banks from Russia and China participating.

By the way, much will depend on the policy of the central banks, and, of course, not only on the Russian Federation and China. The infrastructural capabilities and desire of each of the SCO countries will be key, Usenko added.

What the SCO Development Bank will give to Russian business

The SCO countries already have something to rely on in the implementation of the new project. With the participation of both Russia and China, the Asian Infrastructure Investment Bank (AIIB) and the New BRICS Development Bank have been established and are successfully operating.

“We see that the existing banks — the AIIB and the NBR — are funded and lend in foreign currencies of non-participating countries. That's why I say: if we create a new financial institution, let's make it independent of Western currencies as well, so that you can freely lend to whatever and to whomever you want," Anton Siluanov emphasized.

Since 2022, Russian borrowers have been denied access to global financial markets due to US and EU sanctions, and Chinese banks have avoided transactions with Russian companies due to the risk of secondary sanctions. At the same time, cooperation, at least between the Russian Federation and the People's Republic of China, on simplifying project financing is already gaining practical meaning. For example, China is preparing to open its domestic bond market to large Russian energy companies such as Gazprom, Gazprom Neft, and Rosatom. The opening of the market indicates the deepening of diplomatic and economic ties between Russia and China.

“The placement of bonds in China will give these companies the opportunity to raise money at more affordable rates in yuan, which is important against the background of the high cost of loans in Russia and the ban on foreign loans. This will allow us to receive financing for such large-scale projects as Power of Siberia — 2 and the construction of nuclear power plants," says Anna Usenko.

Meanwhile, one of the most realistic and immediate tasks of the SCO Development Bank is to promptly provide interstate loans. And digital calculations will greatly simplify this, the development of which, according to Siluanov, is a priority.

“We discussed with our partners from China the topic of how this bank should deal with new types of settlements, digital settlements, digital rubles, digital currencies, and digital financial assets, in order to be independent of Western infrastructure,” said the head of the Ministry of Finance.

"Digital settlements" means that the SCO bank is designed to accumulate excess liquidity and direct it to finance projects in countries where there is a high demand for it. At the same time, financing in yuan looks the most advantageous in this design, Barkhota said.

In any case, the main task of the new bank is to reduce the level of dependence of SCO members on Western financial infrastructure and allow trade between the countries to develop freely.

"The key element will be the synchronization of existing national payment systems with each other. This will create a powerful platform for cross-border settlements without the involvement of Western intermediaries and external risks," concluded Alexey Tarapovsky, founder of Anderida Financial Group.

According to experts, even a partial transfer of 30-40% of mutual trade to this platform is equivalent to $700-800 billion and will allow participating countries to save billions on bank fees.

All this will also help attract new assets and enable foreigners to enter the Russian market, which is attractive in terms of opportunities, and increase investments in the Russian economy, Usenko notes. Due to the high key rate of the Central Bank (18%), many companies cannot cope with servicing expensive loans, and money for development is needed. Therefore, foreign investors can become an additional source of financing for Russian business today. [My Emphasis]

The main rate was lowered to 17% on Friday. I still expect it to reach 14% or lower by 31 December, and single digits well before the end of 2026. Unfortunately, the article still shows the system to be opaque because it has yet to begin operations, although some initial action is occurring between China and Russia. Hopefully, work on this new structure will soon be finished. There also needs to be proper regulatory controls to ensure this new system isn’t used for hot money speculation, which is the opposite of serious investment. The West will be looking for ways to subvert this from the outside and inside, so very powerful encryption of the digital system is mandatory. The three new development banks will likely be joined by at least one more that will be similar to the World Bank. And to complement them, a Bancor management organization will need to be formed to deal with balance of payment issues that both Keynes and Hudson see as required for stability and to keep the eventual international trading currency an international asset and not the currency of any one nation.

So, as Hudson has remarked several times, both BRICS and SCO are busily rebuilding the wheel of international finance so it fairly serves all nations big and small. And yes, this is part of the making of a new international system of governance, for as most know law and order must be established for any new system to gain legitimacy and trust. And that means you can’t have Outlaws within the system. Most nations must trade and thus must obey Law. Most of the world knows it no longer needs the Outlaw US Empire market and can simply state that the Empire doesn’t honor contract law and seeks to unilaterally alter the terms of agreements, which is violating a contract. IMO, ceasing trade with the Outlaw US Empire will make containment faster and easier, and will thus make better global governance and security attainable.

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