Executive Summary
A series of recent resolutions gave force to the Central Bank of Yemen in Aden after the Houthi group has strangled the economy in the liberated areas and used the national currency as a tool of war by speculating with it by taking advantage of the exchange rate differences between the old and new editions and inflating the commission value up to 300%.
For the resolutions to see the light and be implemented on the ground has caused confusion in banking business in the Houthi-controlled areas, with the issuance of two important resolutions regulating the process of practicing foreign remittance activities for international companies and stopping dealing with the six banks that did not transform their headquarters to Aden.
The announcement of the withdrawal of the old edition – although it came seven years late after the issuance of the new editions – will contribute to reduce the monetary supply in the Houthi-controlled areas, as they are actually suffering from a liquidity crisis from the old editions as a result of most of them becoming damaged.
This will give the internationally recognized government negotiating power. The dealing of financial institutions and international organizations in their accounts with the Central Bank of Yemen – Aden will contribute to provide foreign exchange.
Working to unify monetary policy at the national level, and preventing any interference by the Houthi group in influencing the exchange rate of the national currency, will be managed by the sovereign Central Bank of Yemen – Aden.
Introduction
The monetary authority is considered one of the important authorities in managing the economic policy of any country, the conflict over it began in 2016, and increased at the end of 2019 when the Houthi authorities prevented the circulation of new editions of the national currency, and criminalized their entry into areas under their control, and from here were the beginnings of the conflict. The Houthis have used money exchange shops, which are considered one of the most important tools that played a major role in transfers between the internationally recognized government areas and the Houthi-controlled areas. Where Al-Houthi has employed the shops in speculation in the new edition of the national currency, which exposed the financial sector that is ruled by international rules and agreements, to comply with a change in its form and deviate from its national goals of creating stability in the national currency and thus stabilizing the living conditions of the Yemeni citizen.
The Houthis have continued to undermine the banking sector without the Central Bank of Yemen – Aden showing any reaction to deter the Houthi authorities’ persistence in manipulating living conditions, as the liberated areas have became targeted by the Houthi authority through the financial sector, which contributed to the continued waves of high prices in the liberated areas, which strengthened the power of the Houthi.
Al-Houthi has practiced money laundering operations and smuggling them through networks that runs under the names of the Central Bank of Yemen – Aden, which they uses as a cover to weaken their work and implement their resolutions that have become ink on paper. The main centers of commercial and Islamic banks and microfinance in Sana’a also strengthened the Houthi power, making these banks outside the financial oversight and auditing of the monetary authority of the internationally recognized government.
All initiatives have failed to unify monetary authority at the national level, as the Houthi authorities were creating one crisis after another in all files, including the financial sector.
In order to save the deteriorating economic situation, the recent resolutions have come to mitigate the economic effects that the national economy is experiencing, and to stop the deterioration of the national currency, which is the core of monetary policy. The recent resolutions represent the restoration of the true spirit of the Central Bank of Yemen – Aden, to conduct its national duties, implement its decisions, and protect what remains of the Yemeni financial sector, which has changed in its essence, content, and form as a result of devouring depositors’ funds under the name of prohibiting interest and violating the Yemeni financial law.
Analytical reading of Resolutions No. (17) & (20) of 2024
In a careful and investigational look at Resolution No. (17) of 2024, in which the five banks have given a deadline to move their head offices to Aden the temporary capital, we remember the resolution that has taken in 2021 during Mr. Mayad; the era of Central Bank Governor, which carried the same meanings and connotations as the new resolution, except that it was not actually implemented, due to the presence of a political agenda and negotiations with the Houthis in order to reach a political settlement, this did not happen. Al-Houthi has adopted this policy to prolong the negotiations, then to create obstacles and then fail.
Perhaps the resolution that has issued on April 2, 2024 under No. (17), which gave a period of sixty days to transfer the banking centers to Aden the temporary capital, , and all indicators expected it to end like others before, but Resolution No. (20) of 2024 was a shock as it was stopped to deal with the six banks that represent the largest financial institutions in Yemen and that manage foreign operations in international exchange.
Resolution No. (20) is considered a fateful decision for monetary policy, and its implementation must be applied as a result of the banks’ non-compliance with the instructions and decisions of the Central Bank of Yemen – Aden, and the banks’ continuation of dealing with the Houthi group, which is classified on the terrorist lists, is a violation of banking work, and it has also become under suspicion of dealing with money laundering operations that expose depositors’ funds to high risks of being banned internationally.
Applying the two resolutions is an implementing the instructions of the Central Bank of Yemen – Aden, the procedures in force and the commitment of the banks means submission to the internationally recognized monetary authority from which it derives its power. The violation of the six banks is a violation of the financial laws that regulate the work of the financial sector in Yemen, which exposes them to a ban on dealing with them regionally and internationally, given that the global financial system has become digital and linked to the world, and Yemen is a country open to global economies.
Banks whose headquarters are under Houthi control in Sana’a are now threatening depositors not to pay their deposits, as well as imposing an unreal exchange rate, and their assets are being managed by employees imposed by the Houthi authority on bank departments. This is a clear violation of disclosing banking operations to parties that are not internationally recognized and are not subject to the authority of the internationally recognized government.
Resolutions of Central Bank of Yemen– Sana’a on non-working days
There is confusion that affect the Central Bank of Yemen – Sana’a, by issuing impromptu resolutions on a day that is considered an official and religious holiday, according to what the Houthi authority claims, which undermined and converted the banking system by prohibiting interest and considering it as a usury in the year 2023, which contributed citizens to turning away to deposit their money in banks and return it. Invest it. While the Central Bank of Yemen – Sana’a was opened in minutes to issue resolutions, this expresses the confusion that the financial sector is experiencing and that it is not subject to any legal procedures as it opens and closes according to Houthi orders.
It is clear from Resolution No. (4) of 2024 that was issued on Friday – a religious holiday – which was drafted in a hurry and this appeared in the preamble of the resolution as it used the word (prohibiting dealings), which is a strong, non-diplomatic word. The Resolution has included thirteen banks, all of which are based in the liberated areas and in Aden particularly. There are eleven newly established banks, and therefore they do not have branches in areas under Houthi control, and this reflects the fact that the Houthis operate irregularly.
The Central Bank of Yemen – Sana’a was not successful in its Resolution because there were no banks in Sana’a or any of its branches either. After that, on the same day, it was announced that the old edition circulating in the liberated areas would be exchanged for the new edition and its corresponding real values. Here is a paradox, as the Houthi authority had previously prohibited dealing with the new editions. Because the old edition does not exist in the liberated areas, and the monetary mass of the old editions has essentially moved to the areas under Houthi control, the areas are no longer neutral to the areas under Houthi control, and therefore the capitals Aden, Mukalla, and Ma’rib are not circulating any old edition as a result of it being withdrawn seven years ago from the liberated areas by merchants as a result of the exchange. Trade of goods between the liberated areas and Houthi-controlled areas. The Houthi authorities also used the exchange differences between the old and new issues in the large commission to make all transfers to areas under their control in dollars or Saudi Riyals.
Perhaps this confusion that affect the Central Bank of Yemen – Sana’a made it issue counter resolutions that have no effect on the liberated areas, while this matter will create a liquidity crisis in the Houthi-controlled areas, as they have already been suffering from a liquidity crisis since the last month of Ramadan.
Conflict or trade-off over monetary authority
Monetary sovereignty means that the one who has the initiative control is the Central Bank of Yemen – Aden, which regulates the banking sector, money exchange shops, financial institutions, and internal and external financial transfers, and has controlled debt instruments since 2022, when financing of the state’s general budget was stopped through deficit inflation. This counts to the Central Bank of Yemen – Aden, despite the restrictions it was subjected to by international organizations that continued to deposit their accounts in the Central Bank of Yemen – Sana’a, and their lack of commitment to dealing with the internationally recognized Central Bank of Yemen – Aden.
Conflict has begun in September 2016 when the headquarters of the Central Bank of Yemen was transferred from Sana’a to Aden by a presidential resolution by former President Abed Rabbuh Mansour Hadi, which led to keeping out Al-Houthi of the advantages that enjoyed as a result of the presence of the Swift in Sana’a, and the Central Bank of Yemen – Aden remained a formal name. Only Munser Al-Quaiti, Zammam, Hafez Mayad, and Al-Fadhli were able to issue new currency issues between the years 2017-2018, and issued many instructions and procedures that did not see the light of day as a result of political wrangling and failure to give priority to the national interest.
The complications in the political scene and the Houthis’ closure to the government of all ways to achieve a breakthrough in the economic aspect, and the Houthis’ continued attempt to dry up the resources of the Central Bank of Yemen – Aden, turning foreign currency into areas under its control, and stopping oil exports since October 2022, all that made the Central Bank of Yemen – Aden in a critical situation to pay its obligations towards state employees in the civil and military sectors.
The recent series of resolutions will eliminate the existence of two independent currencies in one country, according to the announcement of the Central Bank of Yemen – Aden on May 30, 2024, by giving a deadline to replace the old printing within two months (sixty) days, and after that it will become an illegal currency, and this will create an additional crisis on the Houthi authority in liquidity and demand for foreign exchange for use in internal exchanges.
With these resolutions, the Houthi regime’s play with the monetary authority and its attempt to distort the Yemeni banking system at the regional and global levels will be ended by financing terrorism, money laundering, and trafficking in contraband, and working to protect the remaining funds of depositors and stakeholders in closed joint-stock banks.
The failure of the political discourse made the economic file the focus of the conflict
The Houthis have defeated all the peace talks, whether in Stockholm or Muscat, and the truces since April 2022 have not adhered to any of them on the humanitarian side, especially in the prisoner exchange file, as they have gotten away from it and released only some. As for opening roads, no roads were opened, and this is not surprising for a group that rebelled and fought six wars with the government to practice the principle of negotiate, then negotiate until it reaches the goal.
The Houthi authority always refuses any agreements, and backs down at the last moments. The Houthi history is full of breaking agreements, and it continued to ignore the suffering of the Yemeni people as a result of not reaching a meeting point, which reduced the pace of development in the country, which resulted in many devastating effects on the infrastructure, educational and health services and thus the economy as a whole.
In October 2022, Al-Houthi has moved to bomb Dabba facility in Hadhramaut and Al-Nashima in Shabwa with drones in order to deprive the internationally recognized government of oil revenues. The siege has continued until now, which has brought the economic situation in the liberated areas into an economic crisis. The government has delayed paying salaries, continued increases in the general level of prices, and the weakness of services provided by the government, which has made the economic challenges in the liberated areas fall into economic recession.
Then Al-Houthi has took cover behind the name of defending Gaza and Palestine against the Israeli aggression under the resistance, which led Al-Houthi to attacking cargo ships in the Red Sea, Gulf of Aden, and Bab al-Mandab, which contributed to the classification of the ports of the liberated areas as high-risk, which raised shipping costs, which in turn was reflected in Imported goods.
The Houthis’ continued harm to the national economy was not limited to monetary policy only, but also extended to tax policy in raising the costs of transporting goods between the liberated areas and areas under its control, as well as imposing 100% customs on imported goods from the liberated areas.
Is the monetary authority unifying or is it the final division?
The monetary division has become the master of the situation, and a tangible reality as a result of the Houthi practices in trying to separate the financial system by imposing restrictions on the circulation of new printing, issuing electronic payment laws without supervision that are already illegal, and preventing banks from participating in the auctions that the Central Bank of Yemen – Aden presents weekly.
At the end of 2019, the Houthi authority in areas under its control prevented the circulation of new printing of the national currency, creating a dual Yemeni economy due to the large disparity in the exchange rate, which made the exchange rate in the liberated areas high, reaching 1766, while the old printing maintained a fixed exchange rate at 530 for U.S. dollar.
The efforts of local exchange networks to finance their operations through unreal remittances made them a tool of war that spread them in the liberated areas, and the increase in exchange shops through the establishment of branches and licenses employed them in carrying out their operations through the Yemeni government.
The Central Bank of Yemen – Sana’a has announced the issuance of a coin in March 2024, which is a false coin of one hundred Yemeni riyals category. This was explained by this category become age-old and its absence in the areas under its control, and its circulation was prohibited in the liberated areas by the Central Bank of Yemen – Aden.
Preventing dealing with the unified financial network managed by the Central Bank of Yemen – Aden. Al-Houthi has focused on stopping dealing with certain exchange shops identified by name, such as Al-Qutaibi Exchange Company and Al-Busiri Exchange Company, with Circular No. (13), and dealing with them was resumed with Circular No. (14) with the same year and month, i.e. in March 2024; This is because the Central Bank of Yemen – Aden has issued a circular not to deal with five banks whose head offices are located in Houthi-controlled areas.
Al-Houthi has refused to deal with the International Accounts System (IBAN), which is used by all banks to open accounts for individuals as well as companies, and prevented the connection of exchange shops with the unified network for money transfers.
Solutions, recommendations and point of view
Through the previous review of the monetary developments that occurred in the economic affairs, especially the monetary authority entrusted with working to stabilize the national currency, stabilize prices, and reduce the inflation rate, and in light of another party trying to defeat the Central Bank of Yemen – Aden, the most important solutions and recommendations that were reached are summarized in the following:
- The Central Bank of Yemen – Aden continues to implement the procedures and instructions that recently issued and makes them effective in all Yemeni territories.
- Limiting the work of exchange shops, and linking them all to the unified financial network in order to control the movement of cash internally between the governorates and externally to know the name of the customer and the beneficiary, and to set limits for internal and external transfers.
- Determining the required amount of monetary mass based on the economic activity in the country in a way that does not affect inflation rates.
- The Central Bank of Yemen – Aden continues to exercise oversight over financial operations as a result of the open international support it received from the Quartet and the European Union.
- The financial policy must use its tools: spending policy and tax policy in parallel to monetary policy to dry up the sources of Houthi revenues.
References
- Economic Reforms Team, (2022), Initiative to Unify Monetary Policies and Reduce the Impact of Division, Center for Economic Studies and Media, November.
- REGAINYE Restoration Initiative, (2023), Houthi takeover of the banking sector, banking is a tool of war, WWW.REGAINYE.ORG
- Mitersky, Alexander, (2015), The Civil War in Yemen: A Complex Conflict and Divergent Prospects, Arab Center for Research & Policy Studies.
- Moyar, Jonathan D., Hanna, Taylor, Paul David K., Mibbs, Brander R. (2019), Assessing the Impact of the War on Development in Yemen, United Nations Development Programme, Sana’a.
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