Iraq is the latest nation in the Global South to move away from the US dollar in bilateral trade with China.
The Iraqi central bank announced on 22 February that, for the first time, it plans to allow trade from China to be settled directly in yuan instead of the US dollar to improve access to foreign currency.
“It is the first time imports would be financed from China in yuan, as Iraqi imports from China have been financed in (US) dollars only,” the government’s economic adviser, Mudhir Salih, told Reuters on 22 February.
According to a statement released by the Iraqi central bank, carrying out transactions in the Chinese currency would boost the balances of Iraqi banks with accounts with Chinese banks.
However, this option depends on the size of the central bank’s yuan reserves.
A second option to boost local banks’ yuan balances would involve converting US dollars held in the central bank’s accounts with JP Morgan and the Development Bank of Singapore (DBS) to yuan before paying the final beneficiary in China.
The Iraqi central bank has been on a mad dash to compensate for a dollar shortagein local markets. This crisis prompted the cabinet to approve a currency revaluation earlier this month.