Iraq Rocks Petrodollar Supremacy, Looks To Trade With China In Yuan

In an effort to improve access to foreign currency, Iraq’s central bank announced on Wednesday that it would allow commerce with China to be settled directly in yuan for the first time.

The central bank has been acting to compensate for a dollar shortage in domestic markets, prompting the cabinet to authorize a currency revaluation earlier this month.

“It is the first time imports would be financed from China in yuan, as Iraqi imports from China have been financed in (U.S.) dollars only,” the government’s economic adviser, Mudhir Salih, said in a statement.

The central bank may, as part of its plan, increase the yuan holdings of Iraqi banks with accounts with Chinese banks, according to a statement.

Another possibility would be to increase the central bank’s balances with JP Morgan and Development Bank of Singapore. Salih stated that the two banks would convert the dollars to yuan and pay the final beneficiary in China.

The global oil cartel OPEC’s second-largest producer is joining the Middle East’s top countries, such as Saudi Arabia and the United Arab Emirates, in pursuing non-dollar trading links–posing a growing threat to the dominance of the petrodollar. The central bank added that it hopes to facilitate money transfers to the United States and Europe in the same way that it does with China in the future.

Saudi Arabia Willing To Trade In Other Currencies Poses Threat To The Petrodollar

However, Salih clarified that the yuan settlement won’t extend to Iraq’s oil trade and would just be applied to “imports of the private sector.” Observers, nevertheless, predict that oil trade in yuan would not be far from reality in the future.

Iraq will now allow trade between it and China to be settled in Yuan!

What does Iraq sell to China? OIL

Days of petrodollar supremacy are fading.

— Lark Davis (@TheCryptoLark) February 23, 2023

The actions in Iraq are the latest effort by authorities to stabilize the national currency, which was revalued earlier this month to 1,300 per dollar from 1,460. The action helped to stabilize the dinar’s parallel exchange rate, but it did not completely close the disparity.

The dollar was available on the unofficial market on Wednesday at roughly 1,530 dinars, down from a high of around 1,700 earlier this year.

Iraq has faced dollar shortages as a result of US pressure to curb the flow of money into neighboring Iran, with the New York Federal Reserve imposing tougher limits on dollar transactions by Iraqi commercial banks last November.

As a result, transfer approvals stalled, leading traders to purchase dollars from exchange bureaus. The US Federal Reserve has Iraq’s $103 billion foreign currency reserve.

Back to barter?

The announcement follows Iraq’s recent talks with India about expanding and diversifying trade from oil to non-oil sectors.

At the second round of India-Iraq Foreign Office Consultations in Baghdad, the Indian delegation was led by Ausaf Sayeed, Secretary (CPV & OIA), and the Iraqi mission was led by Hisham Al Alawi, Undersecretary for Political Planning Affairs from the Ministry of Foreign Affairs.

According to a statement from the Ministry of Foreign Affairs, both parties expressed pleasure with bilateral trade, which exceeded $34 billion for 2021-2022, and discussed methods and means to further boost and diversify trade from oil to non-oil industries.

The statement also said that both parties noted the warm and friendly traditional relations and comprehensively reviewed the current status of bilateral relations in all fields, including political, economic, defense, security, trade and investments, development partnership, the scholarship program and capacity building, cultural relations, and people-to-people contacts.

Both parties agreed on the need of maintaining the relationship’s upward momentum through regular visits and talks, and agreed to host the next India-Iraq Joint Commission Meeting at the level of Oil Ministers in New Delhi at a mutually convenient date, according to the statement.

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