With The Rise Of The Chinese Yuan And Local Currency Settlements, Can Iraq Dispense With The Dollar?

With The Rise Of The Chinese Yuan And Local Currency Settlements, Can Iraq Dispense With The Dollar?

Monetary Dependence  Economy / Arab and International / Special Files Yesterday, 4:06 PM | 872  Baghdad Today – Baghdad  The modern Iraqi economy was formed on the basis of a single-source oil rent,  entirely dependent on the sale of crude oil and the   settlement of revenues in US dollars.
 
This pattern made Iraqi monetary policy    directly dependent on the US financial system, with revenues deposited in accounts at the Federal Reserve Bank of New York and   managed according to international regulatory arrangements   linked to   financial compliance and    anti-money laundering programs.

According to economic studies issued by the   World Bank and the  International Monetary Fund,    approximately 90 to 95 percent of Iraq's public revenues come from oil,  making  any fluctuation in the dollar or a decline in global demand for oil a  a direct threat to   liquidity and the   general budget.
 
Financial economists point out that the Central Bank of Iraq does not have absolute freedom to manage its reserves, as most of its transactions are restricted to    US transfer networks, and the   global SWIFT system closely monitors financial transfers,   preventing any parallel transactions outside the dollar system.
 
According to recent academic estimates,  excessive reliance on the dollar has created a distorted import environment,   with the Iraqi market tending toward consuming foreign goods     without boosting domestic production.
 
This has   deepened economic exposure and   tied the domestic financial cycle  to fluctuations in US monetary policy.
 
In contrast,   China has been working  for more than a decade   to build a parallel financial system   that would challenge the dollar's dominance,   by expanding the use of the yuan in international trade and     establishing alternative financial institutions such as the new    Asian Development Bank and the   China Payments System (CIPS).
 
In 2023, Beijing announced that   more than 52.9 percent of its cross-border transactions were settled in yuan, surpassing the dollar for the first time in modern history.
 
While this percentage reflects a gradual shift   rather than a sudden reversal, it points to a fundamental shift in the balance of global financial influence.
 
International economics researchers believe that   China's agreement with Australian company BHP       to settle iron ore trade in yuan    represents a pivotal moment in the history of global trade, as   it removes one of the world's most traded commodities     from the dollar.
 
This move, along with a series of similar agreements with other countries,   most notably Russia and Saudi Arabia,      indicates that the yuan    is beginning to transform   from a local currency into a strategic settlement tool in the international trade system.
 
Beijing has also relied on    comprehensive institutional tools   to bolster market confidence in the yuan,  such as   linking the currency to a strong gold reserve system and    ensuring its stability through prudent monetary policies.
 
This has made it an increasingly attractive option    for countries seeking alternatives to the dollar     amid crises of US sanctions and restrictions.
 

Iraq's Position In The Transformation Equation
 
Although Iraq was one of the first oil-producing countries    to open up trade to China,    its position in the global monetary transition remains extremely weak.  Baghdad's banking structure remains traditional    and relies almost entirely on dollar transfers via the US system.
 
Economic researcher Othman Karim confirmed to Baghdad Today that the    idea of ​​abandoning the dollar   "is illogical at the present time," noting that Iraq "sells oil and receives revenues through the US Federal Reserve,   and currently has no realistic mechanism   for settling its transactions in another currency."
 
He adds that the shift to the yuan requires   "a radical change in monetary policy, the  signing of direct banking agreements with China, and the  development of intermediary electronic payment tools    that can bypass US restrictions."
 
According to economists, the challenge in Iraq is twofold:   technical,  related to the absence of an independent financial transfer structure, and   political, related to  US pressure and   Iraq's close ties to the Western system for managing its finances.
 
Trade with China, despite its size, remains settled in dollars, as   Iraqi companies do not have accredited accounts with Chinese banks.
 
Analysts believe that any serious attempt to transition to the yuan   requires  profound institutional reform of the central bank,   enhanced financial transparency, and the   establishment of a dual reserve in yuan and gold  as a preliminary step toward monetary diversification.
 
While it is difficult to completely sever the link to the dollar,   some experts do not rule out a partial move toward monetary diversification,  through limited agreements with China    to settle a portion of non-oil imports in yuan.
 
Given China's increasing openness to the Middle East and   its signing of yuan-denominated settlement agreements      with Saudi Arabia and the UAE,   Iraq could consider establishing a trade barter mechanism   under which it would import Chinese goods in exchange for oil exports,   without having to use the dollar.
 
Some monetary researchers also suggest that   Baghdad begin allocating   a portion of its foreign exchange reserves in yuan,      as a symbolic step to expand financial diversification,   while developing banking agreements with the People's Bank of China      to facilitate direct transfers.
 
However, these paths remain subject to complex political factors,   most notably the relationship with Washington and the   fear that any move toward China could be      interpreted as a step toward an anti-Western geopolitical axis.
 
Ultimately, economic analysis shows that completely eliminating the dollar in Iraq   is not possible in the short or medium term,  but it remains a long-term strategic goal in light of global changes.
 
Iraq, as a dependent rentier economy,   needs to first build its production and commercial independence    before considering monetary independence.

While the rise of the yuan opens    a window for rebalancing the international financial system,   it does not negate the fact that the   dollar still holds the  deepest and    most widespread structure.
 
Therefore, in the coming period,   Iraq will remain governed by the duality of monetary and political power:      adopting the dollar as the primary currency for governing the state,    while closely monitoring the transformations taking place in the East,   where China is rewriting the equation of global financial influence,   step by  step .         https://baghdadtoday.news/285422-.html