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Kazakhstan and Azerbaijan Strengthen Trade Ties

Kazakhstan and Azerbaijan Strengthen Trade Ties

Kazakhstan and Azerbaijan are strengthening…

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Iraq To Drop Dollar In Trade With China

  • Iraq’s central bank is set to allow trade with China to be settled in yuan.
  • Iraqi imports from China have previously been financed in U.S. dollars.
  • Last year, US regulators began enforcing controls on transactions by Iraqi commercial banks which caused a dollar shortage in Iraq.
Yuan

The Iraqi central bank announced Wednesday 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.

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 shortage in local markets. This crisis prompted the cabinet to approve a currency revaluation earlier this month.

Last year, the US Treasury and the Federal Reserve Bank of New York began enforcing stricter controls on international transactions by Iraqi commercial banks, forcing them to comply with specific SWIFT global transfer system criteria to access their foreign reserves.

The move was allegedly meant to "curtail money laundering and the illegal siphoning of dollars to Iran and other heavily sanctioned [West Asian] countries."

However, the sudden rules change for Iraqi banks sent the economy reeling as 80 percent, or more of Iraq’s daily US dollar wire transfers could no longer be completed.

Last week, a senior Iraqi delegation visited the US capital to discuss easing the US Treasury measures. Following the trip, Foreign Minister Fuad Hussein denied reports that Washington imposed conditions on Baghdad to help with the dollar crisis. Hussein added that it is "only a matter of time" before the exchange rate stabilizes.

Since the war in Ukraine started, several nations in the Global South have begun to moveaway from the US dollar in bilateral trade with China. Many others have chosen to boost their Chinese yuan reserves at a time when the hegemony of the greenback continues to weaken.

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  • Mamdouh Salameh on February 23 2023 said:
    China is the largest buyer of Iraqi crude oil and also the largest investor in In Iraq’s oil industry. Moreover, it is emerging as a major trade partner for Iraq.

    Furthermore, there is no rule to stop Iraq accepting the petro-yuan in payment for its crude exports to China.

    The move away from the dollar (and petrodollar for oil sales) is gaining momentum as the world now associates the dollar with sanctions which the United States impose crudely, savagely and haphazardly against countries which don’t toe the US political line.

    Last year, the US Treasury and the Federal Reserve Bank of New York began enforcing stricter controls on international transactions by Iraqi commercial banks, forcing them to comply with specific SWIFT global transfer system criteria to access their foreign reserves. This has resulted in a dollar shortage in Iraq.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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