DUBAI - Iraq's central bank said on Wednesday it planned to allow trade from China to be settled directly in yuan for the first time, in an attempt to improve access to foreign currency.

The central bank has been taking urgent steps to compensate for a dollar shortage in local markets, which prompted the cabinet to approve a currency revaluation earlier this month.

"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 government's economic adviser, Mudhir Salih, told Reuters on Wednesday.

The move is the latest sign of the yuan's growing role on the international stage as China gradually opens up its financial markets and some countries look to diversify their currency exposures.

The central bank could, as part of its plan, boost the balances of Iraqi banks that have accounts with Chinese banks in yuan, it said in a statement.

Another option would be to boost local banks' balances via the central bank's accounts with JP Morgan and Development Bank of Singapore (DBS), it added.

The first option would depend on the central bank's yuan reserves, while the other would use the bank's U.S. dollar reserves at JP Morgan and DBS. The two banks would convert the dollars to yuan and pay the final beneficiary in China, Salih explained.

(Reporting by Nayera Abdallah and Ahmed Rasheed in Baghdad; Editing by Frank Jack Daniel and Mark Potter)