Iraq’s central bank announced on Wednesday that it plans to settle Chinese imports directly in yuan instead of US dollars to improve access to foreign currency.
“This is the first time that imports from China would be financed in yuan, as Iraqi imports from China have only been paid in (US) dollars so far” the government’s economic advisor, Mudhir Salih, told Archyde.com.
Issued by the Central Bank of Iraq according to a statement conducting transactions in Chinese currency would increase the balances of Iraqi banks with accounts in Chinese banks. However, this possibility depends on the size of the central bank’s yuan reserves.
A second option to boost local banks’ yuan balances would be to convert US dollars held in the central bank’s accounts at JP Morgan and the Development Bank of Singapore (DBS) into yuan before paying the final beneficiary in China. Iraq’s central bank launched a mad rush to offset the dollar shortage in local markets. This crisis prompted the cabinet to approve the revaluation of the currency earlier this month.
Last year, the US Treasury Department and the Federal Reserve Bank of New York began applying tighter controls on the international transactions of Iraqi commercial banks, forcing them to meet special criteria for the SWIFT global transfer system to access their foreign exchange reserves.
The purpose of the move was said to be to “crack down on money laundering and the illegal smuggling of dollars into Iran and other heavily sanctioned countries [nyugat-ázsiai] countries”.
However, the sudden rule change affecting Iraqi banks shook the economy, as 80 percent or more of the daily Iraqi dollar transfers simply could not be completed.
Last week, a high-ranking Iraqi delegation visited the US capital to discuss easing measures from the US Treasury Department. After the trip, Foreign Minister Fuad Hussein denied reports that Washington had set conditions for Baghdad to deal with the dollar crisis. Hussein added that “it’s only a matter of time”to stabilize the exchange rate.
Saudi Arabia and the United Arab Emirates have already taken action
Since the outbreak of the war in Ukraine, several countries have decided to reduce their dependence on the dollar. Many have decided to increase their Chinese yuan reserves at a time when the hegemony of the dollar continues to weaken. Not so long ago, Saudi Arabia announced that it would renegotiate its previous trade agreements and accept Chinese yuan instead of the US dollar for its oil.
Last month, UAE Secretary of State for Foreign Trade Thani Al-Zeyoudi told Bloomberg TV that he was in talks to boost dollar-free trade (both in oil and non-oil exports) with some of his biggest trading partners. Last year, the country signed several economic pacts with, among others, India, Indonesia, Turkey and Israel, with whom it would like to trade using alternative means of payment.