Iraq has decided to stop using the Chinese yuan for financial transactions following a directive from the US Federal Reserve, citing concerns over potential manipulation and other issues with some transfers, a parliamentary finance committee member revealed to Al Forat News on July 11.

“The US Federal Reserve has mandated Iraq to cease dealing in the Chinese yuan, alleging irregularities and certain problems in transactions,” said Moeen Al-Kadhimi in a press statement. “Many decisions by the Central Bank of Iraq are imposed by the US Federal Reserve,” he added.

Al-Kadhimi explained that Iraq’s oil revenues, amounting to 3.5mn barrels per day (b/d), are deposited in the US Federal Reserve. These funds are not transferred to Iraq in cash but are managed through transfers initiated by the Central Bank of Iraq.

The Federal Reserve must approve these transfers and the associated commercial transactions before releasing funds to the designated Iraqi entities.

He noted that the Central Bank of Iraq's operations are heavily influenced by US directives, which are justified on administrative, financial, and anti-terrorism grounds. However, Al-Kadhimi believes these reasons are politically motivated to exert pressure on the Iraqi government.

On the impact of halting transactions in Chinese yuan, Al-Kadhimi mentioned that traders and the Central Bank of Iraq have multiple alternatives and do not rely solely on the dollar. Therefore, this suspension is temporary.

Al-Kadhimi also stated that the parliamentary finance committee would urge the Central Bank to address this issue and diversify its currency basket to provide more options for both the bank and Iraqi traders.

Iraq has been bolstering its yuan-denominated assets through the Singaporean Development Bank to finance trade and imports with China, totalling approximately $12 billion annually.

Additionally, Iraq has been enhancing its assets in UAE dirhams, negotiating to increase its euro-denominated assets for trade with the European Union, and opening bank accounts in Indian rupees for several Iraqi banks.

Since early 2023, the Central Bank of Iraq has implemented several measures to stabilise the national currency and overall economy, mitigate the volatility of the Iraqi dinar against the US dollar, and facilitate import and export operations by establishing new partnerships with global banks, including those in China.

Among these decisions was increasing the balances of Iraqi banks holding accounts with Chinese banks in yuan. This direct dealing in yuan, bypassing the US dollar, is intended to streamline financial transactions, reduce import costs, and protect against exchange rate fluctuations within Iraq.