Iraq to settle bilateral trade with China in yuan to defend the dinar

Iraq’s central bank announced on Wednesday that it would settle purchases of Chinese imports directly in yuan in order to improve its foreign reserves balance, Reuters reports. The move comes as strict US currency controls intended to limit dollar flows to sanctioned Iran and Russia contributed to a dollar shortage, threatening the dinar’s peg.

The central bank will hold yuan in reserve and directly supply yuan to local buyers of Chinese imports. According to the prime minister’s office, yuan settlement only applies to private sector trade and won’t extend to Iraq’s oil industry.

The move comes on the heels of Chinese President Xi Jinping’s announcement at a Gulf states summit in Saudi Arabia that he hoped China would be able to pay for oil and gas from the region in yuan.

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