The Central Bank of Iraq has announced plans to settle trade with China directly in yuan, a move that is expected to improve its access to foreign currency and stabilize exchange rates. Previously, Iraqi imports from China were financed in US dollars only. The move is part of a series of measures by the central bank to address a dollar shortage in local currency markets, which forced Iraq’s cabinet to allow a currency revaluation earlier this month.
The revaluation plan was submitted by the central bank after the Iraqi dinar shed more than 10% of its value in recent months. The cabinet set the official exchange rate at 1,300 Iraqi dinars per US dollar. The first option for settling trade in yuan would depend on the central bank’s yuan reserves, while the second would rely on the bank’s US dollar reserves at JP Morgan and DBS. The two banks would convert the dollars to yuan and pay the final beneficiary in China. The move signifies the growing importance of the Chinese currency in international markets.
The Central Bank of Iraq’s decision to allow direct settlement of trade with China in yuan is expected to have significant implications for the country’s economy. The move is seen as a response to a dollar shortage in the local currency markets that has forced the country to take measures to stabilize the value of the Iraqi dinar. By allowing trade to be settled directly in yuan, the Central Bank of Iraq is hoping to improve its access to foreign currency and provide a more stable environment for local businesses and individuals.
Why the Central Bank of Iraq made the decision?
The decision to allow trade to be settled in yuan is part of a series of measures that the central bank has taken to address the dollar shortage. In addition to allowing trade to be settled in yuan, the bank has also taken steps to boost the balances of Iraqi banks that have accounts with Chinese banks in the yuan. It has also strengthened the balances of Iraqi banks through the accounts of the central bank to the final beneficiary in the Chinese yuan, through its accounts with JP Morgan and the Development Bank in Singapore.
This move is significant because it marks the first time that Iraqi imports from China will be financed in yuan. Previously, all imports from China were financed in US dollars only. The move is expected to reduce the country’s dependence on the dollar and diversify its foreign currency reserves. It is also expected to improve the country’s ability to do business with China, which has become one of Iraq’s largest trading partners in recent years.
The decision to allow trade to be settled in yuan also signifies the growing importance of the Chinese currency in international markets. China has been working to promote the use of the yuan as a global reserve currency and has been taking steps to increase its use in trade settlement. The Central Bank of Iraq’s decision to settle trade in yuan is seen as a significant step in this direction and is likely to encourage other countries to follow suit.
The Central Bank of Iraq’s decision to allow trade to be settled in yuan is expected to have a positive impact on the country’s economy. By reducing its dependence on the dollar and diversifying its foreign currency reserves, Iraq will be better able to weather economic shocks and maintain stable exchange rates. It is also expected to improve the country’s trade relations with China and increase its access to foreign currency.
Image Credit: Eric Prouzet on Unsplash