The agency reported that the Iraqi central bank is moving to regulate foreign trade with China using yuan as the settlement currency. This development signals a shift in how Iraq manages its international transactions and a broader effort to diversify away from a dollar-centric system. The regulator’s press service conveyed the plan, framing it as a strategic step to stabilize exchange activities amid fluctuations in global currencies and to support smoother trade flows with major partners in Asia.
In parallel, the move is part of Iraq’s broader effort to address a dollar shortage in its local market. By embracing yuan for settlement in some foreign exchanges, Baghdad aims to expand its toolkit for financing imports and receiving payments, thereby reducing the strain on the dinar and supporting liquidity in the financial system. Earlier in January, authorities indicated that the government set a fixed exchange rate at 1,300 dinars per US dollar, illustrating the government’s active role in managing currency stability during a period of rapid global economic change.
The topic gained additional attention in December when discussions at high levels suggested that Xi Jinping’s administration envisions a framework in which oil trade with Arab nations could increasingly occur in yuan. This potential shift would align with broader Chinese policy goals to promote the yuan as a global trading and settlement currency and to strengthen financial ties with energy-producing regions in the Middle East and North Africa.
Reuters, citing a source in Saudi Arabia, reported that the Shanghai Oil and National Gas Exchange could serve as a platform for paying for oil and other energy products in national currencies. If realized, this would create a regional mechanism that supports payments in yuan or other currencies rather than relying solely on the dollar, potentially reducing exchange rate risk and transaction costs for counterparties in the region.
Subsequent reporting from Anadolu Agency indicated that China and Gulf Cooperation Council members reached a consensus on compensating for energy transactions in yuan as part of a broader agreement to facilitate cross-border payments in non-dollar currencies. China, the world’s second-largest economy, has shown renewed interest in strengthening economic ties with the Gulf to diversify trade relationships, expand export markets, and explore financial collaboration beyond traditional dollar-denominated channels. This trend reflects a strategic shift in how major economies approach global trade finance and currency usage, with implications for inflation, monetary policy, and balance of payments considerations in the involved countries.