Iraq's central bank plans to allow trade with China to be settled directly in yuan for the first time, improving its access to foreign exchange. It said in a statement on its website that settling trade in yuan rather than dollars would help Iraq's central bank stabilize the exchange rate.

The move is part of a series of measures by the central bank to address a shortage of dollars in the local currency market, which forced the Iraqi cabinet to allow a currency revaluation earlier this month.

The regulator said the latest announcement was in addition to what was announced in the first tranche of exchange rate stabilization facilities offered by the central bank. The central bank said it has several options, the first being to increase the balances of Iraqi banks that have yuan accounts with Bank of China. Option 2: Strengthen the balance of the Bank of Iraq through the central bank to the account of the ultimate beneficiary in RMB through our accounts at JP Morgan and the Development Bank of Singapore.

According to Mudhir Salih, the government's economic adviser, this is the first time that imports from China have been financed in yuan, as Iraq's imports from China are only financed in US dollars.

The first option would depend on the central bank's renminbi reserves, while the second would rely on banks' dollar reserves at JPMorgan and DBS. Mr Saleh said the two banks would convert the dollars into yuan and pay the ultimate beneficiaries in China. While the move is aimed at addressing dollar shortages and stabilizing the Iraqi dinar, it also marks the yuan's growing importance in international markets.

On February 7, the Iraqi government approved a currency revaluation to strengthen the dinar against the dollar. The cabinet set the official exchange rate at 1,300 Iraqi dinars per dollar. The revaluation plan was submitted by the central bank after the Iraqi dinar devalued by more than 10 percent in recent months. For years, banks and foreign exchange companies have had an official exchange rate of 1,182 dinars per dollar, while the street rate is about 1,200 dinars. In December 2020, the Central Bank of Iraq devalued the dinar to 1,460 dinars per dollar for banks and 1,470 dinars for individuals amid a liquidity crisis caused by the plunge in oil prices in the international market.

But since December 2022, the Iraqi dinar has fluctuated against the dollar as the New York Fed took steps to stem the flow of dollars to sanctioned countries through state-run currency auctions. The United States has blacklisted several Iraqi banks for suspicious foreign transactions. New measures have been introduced to review the process by which funds are released from the United States to meet import and other needs.Editor/XingWentao