BAGHDAD (Reuters) - Iraq’s central bank on Wednesday eased financial restrictions imposed on the Kurdistan region over its independence vote after receiving a pledge of cooperation from Kurdish banks, an Iraqi banking source said.

A man counts money at Stock Exchange in Erbil, Iraq, October 4, 2017. REUTERS/Azad Lashkari

All but four Kurdish-owned banks were allowed to send and receive dollar and foreign currency transfers on Wednesday, the source told Reuters.

It is the first de-escalation measure in the crisis, which erupted after voters in the Kurdish region of northern Iraq overwhelmingly backed independence in a Sept. 25 referendum.

The Iraqi government has also imposed a ban on direct international flights to and from the Kurdish region.

The central bank had informed the Kurdistan Regional Government (KRG) on Tuesday it would stop selling dollars to the four Kurdish banks, and would halt all foreign currency transfers to the autonomous region, banking and government sources told Reuters.

The measures are aimed at tightening the central bank’s control over the Kurdish banking industry.

The central bank will maintain its dollar sale ban for four of the Kurdish banks pending a review of their cooperation, the banking source said.

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“The dollar sale prohibition will be lifted if the central bank sees that the four banks are really cooperating in disclosing their financial transactions,” the source said.

Two foreign exchange counters in the KRG capital Erbil said the dollar rate was unchanged on Wednesday from the previous day.

Businessmen in Erbil had expressed concern on Tuesday that the dollar ban would cause a greenback shortage and possibly lead to a grey foreign currency market, as the Iraqi dinar ($1 = 1,167 dinars) is not accepted abroad.

ISOLATION

The Shi’ite Arab-led Iraqi government has rejected an offer by the Kurdish government to discuss independence.

Backed by Iran and Turkey, Baghdad has demanded that the KRG cancel the referendum result or face continued sanctions, international isolation and possible military intervention.

The international flight ban, imposed last Friday, is forcing travelers to transit through Baghdad and other airports in southern Iraq. It is mainly impacting businessmen and foreigners working in the Kurdish region.

Iraqi Prime Minister Haider Al-Abadi headed to Paris on Wednesday, his first foreign visit since the Kurdish crisis began. His office denied last week that he would hold talks with French President Emmanuel Macron about the Kurdish referendum.

Before leaving Baghdad, Abadi declared three days of national mourning for Jalal Talabani, a veteran champion of the Kurdish cause who later tried as Iraqi president to heal the country’s deep sectarian and ethnic divisions.

Talabani died in Germany on Tuesday aged 83. He was Iraq’s first non-Arab president, a post he took up in 2005, two years after the U.S.-led invasion that toppled dictator Saddam Hussein, a Sunni Arab. Talbani stood down in 2014.