Since the onset of the current year, 2024, there has been a significant escalation in the conflict between the monetary authorities in both Sanaa and Aden. The crux of this dispute lies in the division of the central bank, which has had far-reaching consequences on monetary and financial policies. Notably, it has resulted in the fragmentation of the national currency, seemingly creating two separate currencies, each with its own exchange rate against foreign currencies. As a result, the economic and humanitarian situation has deteriorated, exacerbating unprecedented economic fluctuations. In recent times, we have observed a persistent increase in inflation rates, economic recession, and a decline in the purchasing power of the Yemeni Riyal.
The prevailing circumstances, driven by the need to address the increasing banking division and economic crisis, have compelled the Central Bank in Aden to adopt a comprehensive set of policies and measures. These initiatives are aimed at effectively regulating the monetary market across the nation, ensuring stability and addressing the challenges faced. With its international recognition as the legitimate state bank, the Central Bank in Aden assumes a crucial role in guiding the country's financial landscape. By implementing these policies and measures, it seeks to establish a robust framework for managing the monetary system and mitigating the adverse effects of the banking division
Significant among the policies and measures implemented by the bank, which have garnered substantial attention within Yemen, is the establishment of a cohesive financial network that encompasses all units of the Yemeni banking system. This endeavor has entailed the undertaking of necessary legal procedures to seamlessly integrate these units into the network. The primary objective is to ensure that all banking entities operate under the supervision and control of the Central Bank in Aden, thereby adhering to a unified monetary policy. Moreover, a strategic and crucial decision has been taken to relocate the branches of the bank from Sanaa to Aden. This significant step is aimed at safeguarding these branches from the complexities arising due to the division of monetary authorities. By consolidating the bank's branches in Aden, potential conflicts stemming from dual policies and measures can be effectively minimized. This relocation paves the way for enhanced operational efficiency and coherence within the banking system and facilitates a more streamlined and unified approach, ensuring a cohesive and harmonious functioning of the banking sector.
In addition, the Central Bank has recently issued a significant decision to withdraw the older edition of currency banknotes, which were in circulation prior to 2016. This decision requires that these obsolete banknotes be exchanged within a period of 60 days from the date of the decision. The rationale behind this measure is that the old banknotes have become worn out and have exceeded their expected lifespan. However, it is important to note that despite their worn-out condition, these old banknotes will still be accepted for circulation in areas under Houthi control, as stated in the decision. This specific provision aims to address the challenges posed by the division of the national currency, ensuring that commerce and financial transactions can continue smoothly in those areas.
Efforts shall be underway to establish consensus between the monetary authorities in Sana'a and Aden, which involves the creation of a centralized administration for the Yemeni Central Bank. This administration will have a temporary headquarters in Amman, Jordan, under the supervision of the United Nations. A joint board of directors, consisting of administrative leaders from the banks in Sana'a and Aden, will govern this center to formulate monetary policies and effectively manage the central bank branches across all governorates of Yemen.
In addition to actively working towards preventing unauthorized financial transfers through banks operating outside the jurisdiction of the Central Bank in Aden, which includes banks and financial institutions primarily based in Sana'a that do not adhere to the monetary policies and procedures set by the Central Bank in Aden, efforts are being made to coordinate with internationally recognized government ministries to revoke the authorities of units overseeing these banks. The rationale behind this action is that these units serve as significant and consistent sources of income for the Houthis. It is believed that this approach aims to exert pressure on them to accept unified banking policies and procedures, promoting stability and transparency in the financial sector.
Furthermore, decisive measures have been taken to temporarily suspend the licenses of several exchange companies due to their violation of the prescribed responsibilities outlined in their licenses granted by the Central Bank. These actions reflect the commitment to uphold the integrity and regulatory standards of the banking industry, ensuring that licensed entities fulfill their designated roles in accordance with established guidelines.
Countermeasures
In response to perceived threats to its authority and influence over the areas, under their control, the de facto authority in Sana'a has taken decisive actions. These actions demonstrate their determination to safeguard their position.
One of the significant measures taken was the suspension of banking operations for institutions headquartered in Aden. Additionally, they seized quantities of the newly printed currency, which was deemed unauthorized for circulation. These confiscated funds were considered as seized assets due to their violation of the circulation ban. Furthermore, they implemented a scheme where designated points were established for purchasing cash denominations from the previous edition at prices well above three times the value of the new edition. This maneuver was devised to create the illusion of their ability to protect the currency edition in use within their territories, thereby maintaining public confidence and mitigating the potential impact of the Central Bank in Aden's decision to withdraw and invalidate it.
Moreover, the Houthi authority has taken the initiative to reopen a number of official paved roads in both Marib and Taiz, which had been closed for years, under the pretext of facilitating humanitarian movement. However, it is our belief that the underlying motive behind these actions is to preempt any potential impact of the Central Bank's decisions in Aden. By facilitating trade exchanges and movement between different areas, they aim to undermine the authority of the Central Bank and the government in Aden, who are striving to curtail the leakage of foreign currencies from their regions.
It is worth noting that the smooth flow of movement and trade exchanges enables the continued influx of foreign currencies from legitimate areas to their controlled territories. This is due to the fact that currency exchange necessitates the conversion of Yemeni Riyal into prevailing foreign currencies, specifically the US dollar and the Saudi riyal.
Furthermore, the Houthi authority has taken the step of arresting several individuals who work with international organizations and foreign embassies, accusing them of espionage. This action seems to be a means of exerting pressure to confront the decision to relocate international organizations from Sana'a to Aden. Furthermore, they have detained four aircraft belonging to Yemen Airways, the sole airline that facilitates travel to and from Yemen. It appears that these measures, in our understanding, are intended to impede the implementation of the announced measures by the internationally recognized Ministry of Transportation.
Complex Challenges
All the policies and measures implemented by the authorities in Aden, represented by the Central Bank, as well as the countermeasures taken against them, have complicated the financial and monetary situation and deepened the divide between the Central Bank, the banking system, and the national currency, and has led to further divergence in monetary policies between Sana'a and Aden.
Unfortunately, there seem to be no promising prospects for the alleviation of economic and humanitarian deterioration. On the contrary, the situation appears to be worsening. Numerous escalating problems have emerged, with the most significant being the deepening liquidity crisis in Sana'a and its affiliated areas. This crisis is accompanied by a severe economic downturn that has had a profound impact on various aspects of people's livelihoods and well-being.
Additionally, there has been a significant increase in the leakage of foreign currencies from the country, indicating a continued outflow of remaining national investments. This trend is clearly visible through the growing number of Yemenis investing in other countries.
Further, the people in the areas under the internationally recognized government are indeed facing a helpless situation due to the rapid collapse of the exchange rate of the Yemeni rial. This collapse, exacerbated by the introduction of the new currency, severely undermines the purchasing power of citizens and has detrimental effects on the local economy. Solving this issue presents a challenging task, as it requires the implementation of comprehensive strategies to ensure monetary stability, control inflation, and promote productivity and investment in order to stimulate economic growth. The well-being of the people and the stability of the economy are of utmost importance, and we must work towards finding effective solutions to alleviate their suffering.
A Vision on the Table
Based on the aforementioned, it is clear that there is no solution to the Yemeni situation other than putting an end to the war and achieving a lasting peace. As a precursor to achieving this, we propose a vision that necessitates both parties making serious and decisive choices;
Firstly, in addressing the issue of the divided Central Bank
We firmly believe that establishing a consensus between the monetary authorities in Sana'a and Aden is crucial. To achieve this, we propose the creation of a centralized management structure for the Yemeni Central Bank. This structure would have a temporary headquarters in Amman, Jordan, under the supervision of the United Nations. The management of this centralized entity would be entrusted to a joint board of directors, composed of administrative officers from both the Sana'a and Aden banks. Their primary responsibilities would include formulating monetary policies and efficiently managing the Central Bank branches throughout all Yemeni governorates, including those in Sana'a and Aden.
Once the banking system is unified, it is imperative to focus on its recovery by implementing the following measures: strengthening oversight of currency exchange companies and shops that are excessively widespread throughout the various Yemeni governorates. These entities must strictly adhere to the authorized functions outlined in their licenses. Any exchange shops found conducting banking activities should be promptly shut down to ensure compliance and safeguard the integrity of the financial system.
Secondly, regarding the unification of the national currency, it is imperative that the following steps and measures be taken urgently:
Thirdly, in order to address the collapse of the banking system, it is crucial to take proactive measures after unifying the banking apparatus to facilitate its recovery. This can be achieved by implementing the following steps:
By effectively monitoring and regulating currency exchange operations, the banking system can be safeguarded, ensuring its stability and preventing any actions that could adversely impact the monetary landscape.
Fourthly, in the realm of managing the state's financial resources;
It is essential to empower the central bank to continuously replenish its financial reserves and effectively control the cash market. This will enable the bank to implement monetary policies efficiently, ensuring the ability to navigate economic fluctuations and cover the expenses of the state. To achieve this, the following actions should be undertaken:
