Here are the main points of an important answer to that question by economist and former Wall Street honcho, Michael Hudson:
The six-nation Shanghai Cooperation Organization (SCO) is comprised of Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. It was joined recently by Brazil, for trade discussions among the BRIC nations (Brazil, Russia, India and China), all of which seek a multi-polar world.
If it's not a move to make US hegemony obsolete, then what's the purpose of this new organization? US diplomats may well wonder. After all, this is exactly what a multi-polar world means: no hegemony by any one country. Another clue as to what's about to happen: in 2005 the SCO asked Washington to set a timeline to withdraw from its military bases in Central Asia.
It seems that the US has inadvertently driven Russia, China and their neighbors to find common ground by developing an alternative to the dollar as a dominant or reserve currency, and hence an end to the US ability to run balance-of-payments deficits ad infinitum.
Mr. Medvedev called for China, Russia and India to "build an increasingly multi-polar world order." What this means in plain English is: We have reached our limit in subsidizing the United States' military encirclement of Eurasia while also allowing the US to appropriate our exports, companies, stocks and real estate -- in exchange for paper money of questionable long-term worth!
"The artificially maintained unipolar system," Mr. Medvedev says, is based on "one big center of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks." At the root of the global financial crisis, he concluded, is simply that the United States manufactures too little and spends too much. Especially upsetting to Russia is U.S. military spending, such as the stepped-up US military aid to Georgia, the NATO missile shield in Eastern Europe and, to all the other BRIC and SCO members as well, the huge US military and commercial buildup in the oil-rich Middle East and Central Asia.
The main worry of all these countries is America's ability to print unlimited amounts of dollars. Overspending by US consumers on imports (way in excess of US exports), US buy-outs of foreign companies and real estate, and the many billions of dollars that the Pentagon spends abroad . . all end up in foreign central banks. These central banks then face a hard choice: either recycle these dollars back to the United States by purchasing US Treasury bills, or to let the "free market" force up their currency relative to the dollar thereby pricing their exports out of world markets and hence creating domestic unemployment and business insolvency.
So, when China and other countries recycle their dollar inflows by buying US Treasury bills to "invest" in the United States, this buildup is not really voluntary. It does not reflect faith in the U.S. economy enriching foreign central banks for their savings, or any calculated investment preference, but simply a lack of alternatives. "Free markets," US-style, has maneuvered many countries into a system that forces them to accept dollars without limit. But now they want out.
Central banks now hold $4 trillion of U.S. bonds in their international reserves and these huge loans to the U.S. have financed most of the US Government's domestic budget deficits for over three decades! Consider that about half of US Government discretionary spending is for military operations including the operation of more than 750 foreign military bases as well as increasingly expensive operations in the oil-producing and oil-transporting countries.
The international financial system is organized in a way that finances the Pentagon, along with US buyouts of foreign assets expected to yield much more than the Treasury bonds that foreign central banks hold. Therefore, the main political issue confronting the world's central banks is this: How to avoid adding yet more dollars to their reserves and thereby financing ever more US deficit spending including military spending on their borders.
For starters, the six SCO countries, plus the BRIC countries, intend to trade in their own currencies so as to get the benefit of mutual credit that the United States until now has monopolized for itself. Toward this end, China has struck bilateral deals with Argentina and Brazil to denominate their trade in renminbi rather than the dollar, sterling or euros, and two weeks ago China reached an agreement with Malaysia to denominate trade between the two countries in renminbi.
China, Russia and other countries would no doubt like to get the same kind of free ride that America has been getting. As matters stand, they see the United States as a lawless nation, financially as well as militarily. How else to characterize a nation that holds out one set of laws for others on war, debt repayment and treatment of prisoners but ignores those very laws in regard to itself? The United States is now the world's largest debtor, yet has avoided the pain of the "structural adjustments" that it so rigorously imposes on other debtor economies. In view of the austerity programs that Washington forces on other countries via the IMF and other Washington vehicles, US interest-rate and tax reductions (in the face of exploding trade and budget deficits) are seen as the height of hypocrisy.
The United States tells debtor economies to sell off their public utilities and natural resources, raise their interest rates and increase taxes while gutting their social safety nets so as to squeeze out money to pay creditors. And at home, Congress blocked China's CNOOK from buying Unocal on grounds of national security, much as it blocked Dubai from buying US ports and other sovereign wealth funds from buying into key infrastructure. Foreigners are invited to emulate the Japanese purchase of white elephant trophies such as RockefellerCenter, on which investors quickly lost a billion dollars and ended up walking away.