Another major step forward has been made regarding the internationalization of the renminbi — also known as the yuan — after Iraq's central bank announced a plan to allow direct renminbi settlement for the first time for trade with China.

The Central Bank of Iraq, or CBI, will boost the balances of Iraqi banks that have accounts with Chinese banks in yuan, the CBI said in a statement on Wednesday.

Mudhir Salih, the Iraqi government's economic adviser, stressed that it will be the first time that imports from China will be financed in yuan, as Iraqi imports from China have until now been financed in US dollars only, as reported by Reuters.

According to China's Ministry of Foreign Affairs, total bilateral trade between China and Iraq surged 51.7 percent year-on-year to exceed $24.8 billion in the first half of 2022.

The Iraqi central bank's latest move addresses the country's dollar shortage, as the US Federal Reserve has imposed tighter controls on greenback transactions by Iraqi commercial banks since November.

The CBI can also boost local banks' cash reserves via the former's accounts with JP Morgan and Development Bank of Singapore, according to the statement. The latter two banks will convert dollars to yuan and pay the final beneficiary in China, Salih said.

Covering private sector imports, the new measure will not include oil trade in Iraq, he added.

But Luo Zuoxian, head of intelligence and research at the Sinopec Economics and Development Research Institute, said that there have been growing discussions of using yuan settlements for oil deals between China and countries highly reliant on crude oil exports.

Iraq is the second-largest oil producing member of the Organization of Petroleum Exporting Countries, with crude oil exports accounting for over 90 percent of the country's annual fiscal income. According to Iraq's Ministry of Oil, the country exported more than 1.2 billion barrels of crude oil in 2022, with total revenue amounting to $115 billion.

Lin Boqiang, head of the China Institute for Studies in Energy Policy at Xiamen University, said the role of the yuan will play a more important role than ever on the global stage, especially in global energy trade.

Chances are high that OPEC will follow suit in the years to come, considering the volume of China's oil imports, he said.

China imported a total of 510 million metric tons of crude oil in 2022, edging down 0.9 percent year-on-year, the General Administration of Customs said in mid-January.

According to global financial messaging services provider Society for Worldwide Interbank Financial Telecommunication (SWIFT), the yuan has retained its position as the fifth most active currency for global payments by value in January, with a share of 1.91 percent.

Meanwhile, the Chinese currency was the third most widely used currency for financing services included in cross-border trade in January, behind only the US dollar and euro. Its global market share in this category stood at 4.6 percent, while the reading was 2.15 percent two years ago.

Statistics released by the Ministry of Commerce showed that about 7.92 trillion yuan ($1.15 trillion) of cross-border trade in goods was settled in renminbi in 2022, up 37.3 percent from a year earlier.

In an announcement jointly released by the Ministry of Commerce and the People's Bank of China in early February, it was stated that cross-border trade and investment settled in yuan should be further facilitated and yuan-based commodities trade will be better supported.