Iraq resorts to the Chinese yuan to reduce its dependence on the US dollar, WOW!

Iraq resorts to the Chinese yuan to reduce its dependence on the US dollar

2-23-2023

The Central Bank of Iraq announced its intention to use the yuan currency in its dealings and commercial exchanges with China, in a move that had been anticipated for some time, in light of the transformation witnessed by the global economy, and it was accelerated by the dollar crisis that Iraq witnessed in the past weeks.

BAGHDAD – The Central Bank of Iraq intends to organize its commercial dealings with China directly in the Chinese yuan currency, in a step that is the first of its kind and reflects a trend towards reducing dependence on the US dollar, and thus escaping from its political and economic effects on the country.

The decision comes after an Iraqi delegation returned from a days-long visit to Washington, the aim of which was to reach consensus with US officials regarding easing restrictions imposed by the US Federal Bank regarding dollar money transfers to Iraqi banks, in the context of pressure to prevent dollar smuggling to Iran and the rest of the countries facing sanctions. America like Syria.

The US restrictions had sparked widespread anger, especially among the pro-Iranian Iraqi forces, who described these restrictions as an American attempt to blackmail and bargain with Iraq, calling on the government of Muhammad Shia al-Sudani to provide alternatives to get out of the absolute dominance of the dollar.

And the Iraqi News Agency said on Wednesday that the central bank intends to regulate the financing of foreign trade from China directly in the Chinese yuan currency.

The agency stated that the bank began to take urgent measures that would compensate for the dollar shortage in the local market, which prompted the Iraqi Council of Ministers to agree to re-evaluate the Iraqi dinar against the dollar this month.

“This is the first time that imports from China have been financed in yuan … as Iraq’s imports from China are funded by dollars only,” said Mazhar Salih, the advisor to the prime minister for financial affairs.

This is the latest sign of the growing role of the Chinese yuan globally, with China’s tendency to gradually open its financial markets, in addition to the diversification of some countries’ dealings in foreign currencies, including the Gulf countries, to maintain the stability of their currency.

And Saudi Arabia had issued a decision to adopt the Chinese yuan instead of the dollar in exchange for oil sold to China, and Egypt also decided to replace the guarantee bonds with the yuan currency instead of the dollar. The same step was taken by Israel, which also announced its intention to use the Chinese yuan alongside the Canadian and Australian dollars as a direct alternative to the US dollar.

Economists believe that the global economy is heading towards diversifying official currencies to mitigate the side effects caused by the inflation of the dollar on the economies of countries, especially after the US decision to support the dollar internally, and leave it loose abroad, which caused a wave of anger among Washington’s partners, especially the Europeans.

Experts point out that Iraq is not isolated from this transformation, in addition to the fact that the ruling political system in Baghdad considers that total dependence on the dollar will mean the inability to resist any American pressure or conditions, as happened recently.

Experts point out that the step was expected and that the dollar crisis in Iraq clearly contributes to accelerating its adoption.

The Central Bank of Iraq said in a statement that it aims, within this plan, to strengthen the balances of Iraqi banks, which have accounts with Chinese banks in the yuan currency. The statement added that the second option would be through strengthening the balances of Iraqi banks through the accounts of the central bank with JP Morgan Bank and the Development Bank in Singapore.

The Prime Minister’s Adviser for Financial Affairs stated that the first option depends on the central bank’s yuan reserves, while the other option will utilize the bank’s US dollar reserves in JP Morgan and the Development Bank of Singapore. Those banks would convert dollars into yuan and pay the ultimate beneficiary in China.

Observers say that Iraq’s tendency to use the yuan with China does not mean that it is about to abandon or replace the dollar, as it does not have the luxury of doing so, especially since all its dealings are in dollars, in addition to the fact that all Iraqi foreign currency reserves are with the US Federal Bank.

The option of going to deal in the yuan with China was the subject of discussion for months in Iraq, especially after the Arab-Chinese summit hosted by the Kingdom of Saudi Arabia, in which a high-ranking Iraqi delegation headed by the Prime Minister participated.

The global economy is moving towards diversifying the official currencies to mitigate the side effects caused by the inflation of the dollar on the economies of countries

Al-Sudani said during that summit that it is “an opportunity for economic integration in our region by strengthening cooperation with China,” noting that Iraq has “longstanding relations with China that have taken a growing amount of interest and development over the past years at the governmental and popular levels.”

He stressed that “relationships with China have taken a growing amount of interest and development over the past years at the governmental and popular levels, and that Iraq is looking forward to strengthening partnership within the Belt and Road Initiative, and within the fields of investment, energy and infrastructure projects.”

At the time, the Prime Minister praised the holding of the summit, which comes within “a deep understanding of the international arena, so that we can adopt a balanced and complementary foreign policy that serves the interests of our peoples and countries and promotes stability and prosperity,” noting that Iraq supports “all efforts aimed at strengthening the steady cooperation and friendship relations between the Arab countries and China.” “.

Iraq has close relations with China for decades, and the scope of cooperation between the two sides has expanded significantly in recent years. In 2019, Iraq became one of Beijing’s partners in the “Belt and Road” initiative, with the two countries signing an agreement in this regard.

The “Belt and Road” initiative aims to build maritime and land infrastructure projects that better connect China with Asia, Europe and Africa, but the West, led by the United States, sees this initiative as a Chinese tool to enhance its influence at the international level.

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