Editor's note: Jiang Zhenlong is an assistant research fellow with the Institute of Finance and Banking at the Chinese Academy of Social Sciences. The article reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity. 

Economic and trade cooperation has always been a key area of cooperation of the Shanghai Cooperation Organization (SCO). In recent years, the SCO member states have engaged in comprehensive and in-depth collaboration in vital sectors such as energy, finance, and science and technology.

As trade volume has been increasing and the fields of collaboration broadening among member states, the New Delhi Declaration highlighted support for an increase in the share of national currencies in mutual settlements by member states, promoting currency diversification in trade settlements worldwide. 

The SCO's continuous efforts in promoting the use of national currencies in mutual settlements are conducive to enhancing the status of currency of relevant countries, and optimizing the global currency landscape. More importantly, this will significantly reduce the negative impact brought by fluctuations in the U.S. dollar by cutting reliance on it, thereby contributing to the stable and healthy development of the global economy and finance options.   

Currently, the U.S dollar is still the dominant currency in global trade settlements, and international commodities are predominantly priced in dollars. However, rapid adjustments in U.S. monetary policy have caused notable spillover effects, intensifying fluctuations in commodity prices and increasing debt pressure on emerging economies.

The latest research by the U.S. Federal Reserve indicates that for a one percentage point increase in the federal funds rate, there will be a 0.5 percentage point reduction in the actual output of developed economies, and a 0.8 percentage point reduction in that of emerging economies. This reveals that emerging economies are more susceptible to U.S. interest rate hikes than developed economies.

Meanwhile, strengthening the U.S. dollar index has led to a rapid flow of cross-border capital back to the U.S. Moreover, the devaluation of currencies in emerging economies could potentially trigger monetary and financial crises, bringing substantial downward pressure on global economic growth.

Therefore, promoting currency diversification in pricing commodities, especially by adopting relatively stable currencies as the pricing and settlement currency, can effectively mitigate the fluctuations in commodity prices and their adverse spillover effects. This will play a pivotal role in stabilizing the global economy and finance options.

In summary, on the one hand, the SCO's efforts in actively promoting the use of national currencies in settlements will ensure that trade settlements among member countries remain impervious to fluctuations in dollar liquidity, thus fostering stable growth in bilateral trade. On the other hand, the signing of currency swap agreements by member countries can effectively reduce the risks of fluctuations in exchange rates stemming from changes in the U.S. monetary policy.