Iraq adopts the Chinese yuan instead of the dollar.. What are the pros and cons of the decision?

Baghdad

- Since the beginning of 2023, the Central Bank of Iraq has issued several decisions that would maintain the stability of the general monetary and economic situation and face the risks of fluctuation of the Iraqi dinar exchange rate against the US dollar, in addition to facilitating import and export operations by opening new horizons with international banks, including the banks of China. .

Among the decisions of the Iraqi Central Bank is to strengthen the balances of Iraqi banks - which have accounts with Chinese banks - in Chinese yuan.

Dealing in the Chinese yuan directly without the mediation of the US dollar will contribute to facilitating and accelerating financial transactions, and will reduce import costs and protect against the risks of exchange rate fluctuations inside Iraq.

Al-Jazeera Net presents an economic reading of the Iraqi Central Bank's decision to deal in the Chinese yuan instead of the US dollar. What are its advantages and disadvantages for the Iraqi economy?

What are the positive aspects of the Iraqi Central Bank's decision to adopt the yuan?

The financial adviser to the Iraqi government, Dr. Mazhar Muhammad Salih, describes Iraq adopting this decision as "logical" as a result of the superiority of trade between Iraq and China compared to other countries of the world.

In an interview with Al Jazeera Net, Salih said that China represents Iraq's first trading partner, with annual trade at the level of oil exports and imports of goods and services nearly $53 billion.

Saleh stressed the importance of using the yuan in settling payments related to the Iraqi private sector's trade of Chinese goods and services.

He pointed out that the decision helps the compliance platform adopted by the "Central of Iraq" last year to know the final beneficiary of the external transfer through the "Central" window for buying and selling foreign currency, according to the rules of international transparency.

He added that the decision also has a positive impact on compliance and anti-money laundering efforts.

Mazhar Muhammad Salih: China represents the first trading partner for Iraq (Al-Jazeera)

What is the downside of the decision?

Contrary to what the government advisor said, economist Dr. Salam Sumaisem describes the issue of dealing in the yuan as a "political maneuver" that will not achieve success in the long run.

Sumaisem said in a statement to Al-Jazeera Net that the success of this decision requires the existence of a common value that takes place on the basis of evaluating the price of oil on which Iraq depends on the one hand and the price of the Chinese yuan on the other hand, ie: how much is it equivalent to?

And what is equivalent?

How much will the price of a barrel of oil be calculated?

She pointed out the necessity of having open accounts in the value of the dollar in the end, stressing that the decision is a political maneuver and will not move forward, according to her.

Does Iraq and its banks have the Chinese yuan to support new transactions?

Economic academic Mustafa Hantoush said that Iraqi banks and the private sector own the dollar, not the yuan, adding that Baghdad will buy from China in its currency, but will pay Beijing the value of the purchases in the equivalent in dollars, at a time when the US Federal Bank supports this decision to limit the volume of trade exchange between Iraq and China at 18 to 19 Billion dollar.

In his statement to Al-Jazeera Net, Hantoush warned that the Iraqi economy would be affected by the danger of rising prices of Chinese goods and commodities that are directly related to the rise and fall in dollar prices globally.

Experts say that Iraqi banks and the private sector own the dollar, not the yuan (Al-Jazeera)

Will the Central Bank of Iraq feed the government and private banks in the Chinese currency?

Returning to the financial advisor of the Iraqi government to answer this question, he said that the Central Bank of Iraq is diversifying its reserves in foreign currency, including the Chinese yuan, so it will undoubtedly feed the accounts of Iraqi banks with the "Chinese correspondent banks" in the Chinese yuan currency for the purposes of meeting import requirements from China and paying dues in Chinese currency.

What mechanism will be used in the Chinese yuan payment process?

There are several steps regarding the mechanism that Iraq will use to implement transfers and credits in Chinese yuan instead of US dollars, according to the banking principle "Know Your Customer" (KYC).

The Managing Director of the International Islamic Bank, Suha Al-Kafai, tells Al-Jazeera Net that the Central Bank of Iraq has established simplified procedures for implementing the decision, relying on two types of companies:

•  The first type: Commercial companies in the Federation of Iraqi Chambers of Commerce certified by a notary public and registered in the Companies Registration Department of the Iraqi Ministry of Commerce. The ceiling of one company allowed to deal with will be 260 million Iraqi dinars (200 thousand dollars).

• The second type: companies registered directly with the Companies Registration Department, and they will be allowed to implement credits and transfers for ceilings higher than 260 million dinars (200 thousand dollars).

Al-Kafai added that the account will be opened for those companies, their papers will be audited, their legality and powers confirmed, in addition to checking the official identification papers of the authorized manager and checking the validity of the invoice sent, provided that it is less than 6 months old, and receiving the amount in dinars in favor of the current account after taking internal approvals.

The Managing Director of the International Islamic Bank revealed the unification of international trade for Iraq, through allowing the Central Bank to enter commercial companies in the Kurdistan region into the electronic platform for financial transactions between banks operating in Iraq, and opening the doors to various sectors for import in the same way, such as investment projects and scientific offices for medicine and laboratories. And agricultural projects, treatment, study and sale of real estate, in addition to foreign trade of various items.

Al-Kafaei considered Iraq's dealings with this decision an important step for foreign trade and a gateway to its resumption in accordance with international standards.

Suha Al-Kafai considered the decision an important step for foreign trade and a gateway to its re-launch in accordance with international standards (Al-Jazeera)

Is the new decision circumventing local and international banking legislation and laws?

The banking expert, Aqil Al-Ansari, answers this by saying: I do not think so, explaining his answer to Al-Jazeera Net that the Central Bank, through the "Swift" platform that entered into force at the end of last year, could identify the source of funds, the reason for the transfer, and the last beneficiary.

Is dealing in the Chinese yuan a challenge to America?

Al-Ansari refutes the statements made here and there about the US administration's anger at Iraq's adoption of the yuan to pay for what it imports from China, since it had asked the "GB Morgan" bank to provide it with technical assistance in order to complete the implementation of the new banking decision, and the bank agreed to that.