Iraq's central bank announced on Wednesday that it would allow commerce with China to be settled directly in yuan for the first time.

The central bank has been acting quickly to compensate for a dollar shortage in domestic markets, prompting the cabinet to authorize a currency revaluation earlier this month.

The government's Economic Advisor, Mudhir Salih, said, as quoted by Reuters on Wednesday, that "it is the first time imports would be financed from China in yuan, as Iraqi imports from China have been financed in (U.S.) dollars only."

The move is the latest indication of the Yuan's rising international significance as China steadily opens up its financial systems and some countries want to diversify their currency exposures.

The central bank may, as part of its plan, increase the yuan holdings of Iraqi banks with accounts with Chinese banks, as per the statement.

Another alternative would be to increase local bank balances through the central bank's accounts with JP Morgan and the Development Bank of Singapore (DBS).

The first alternative relies on the central bank's yuan reserves, whilst the second relies on the bank's US dollar holdings at JP Morgan and DBS. Salih stated that the two banks would convert the dollars to yuan and pay the final beneficiary in China.

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