Nearly a year after Saudi Arabia announced it is considering to conduct trade in yuan rather than the US dollar, Iraq is now following suit to turn its back on the American currency.
In a move to denounce the dominance of the US dollar in the international trade, the Central Bank of Iraq (CBI) announced this Wednesday that the country is planning to conduct its foreign trades with China directly by the Chinese yuan.
Introducing two options to implement the new policy, the CBI explained that the first includes strengthening the balances of Iraqi banks that have accounts with Chinese banks in the Chinese yuan. The second option, the CBI added, is to encourage and impower the balances of Iraqi banks through the accounts of the CBI, in the Chinese yuan, with the J.P. Morgan bank, and the Development Bank in Singapore.
The Central Bank of Iraq also noted in a statement that facilities for financial transfers to the United States and Europe will be provided by the same mechanism in the near future.
The CBI indicated that this policy is not yet to be applied on citizens and they still can transfer amounts up to 7,500 USD per month through the money transfer companies at the official exchange rate, 1320 dinars against the U.S. dollar.
Saudi Arabia did it first
Less than a year ago in March 2022, Saudi Arabia was the first country to step up for challenging the domination of the US dollar in the international trade and announced plans to replace the American currency with yuan.
Back then, the Wall Street Journal issued a report, noting that Saudi and Chinese officials are in talks to price some of the Gulf nation’s oil sales in yuan rather than dollars.
Citing people familiar with the matter, the American newspaper also wrote that “the two countries have been in discussions about yuan-priced oil contracts since at least 2016, but they have advanced recently on the back of growing Saudi concerns over Washington’s commitment to the kingdom’s security.”
However, after the rising tensions between Riyadh and Washington, especially during the first year of the Biden administration, leaders in Saudi Arabia realized that they can no longer fully rely on the United States for security matters. For this very reason, Saudi Arabia began buying military equipment from Russia to diverse their military purchase options and wee their dependence off the US.
A turning point for the American currency
Many believe that the culmination of Riyadh distancing itself from the United States was when Biden was treated with cold shoulders in his trip to the Arab country compared to the trip the Chinese president Xi Jinping had to Riyadh a few months later.
Back in December last year when Xi Jinping traveled to Saudi Arabia and was welcomed with open arms by Crown Prince Mohammed Bin Salman, the Chinese President told Gulf Arab leaders that his country would work to buy oil and gas in yuan, a move that would support Beijing’s goal to establish its currency internationally and weaken the US dollar’s grip on world trade.
China’s growing economic influence in the Gulf countries has irritated the United States during the past years. And now, with top oil exporter Saudi Arabia and then Iraq announcing their intention to end trading in dollar, the dominance of the US dollar in the word’s trade can no longer be taken for granted.