Financial division in Yemen.. Continuous monetary crises strain the economy

The war that has been raging in Yemen since 2015 has not only divided Yemen politically and militarily between the internationally recognized government based in Aden and the Houthi group that controls Sanaa and northern Yemen, but the division has also extended to the financial and economic sector, which has also witnessed a division that has had negative effects on the population.

The features of this division are evident in the presence of two central banks, one in Sana’a affiliated with the Houthis, and the other in Aden affiliated with the internationally recognized government. In addition, the Houthi areas deal with the old currency, while the areas of the internationally recognized government deal with the new currency printed after 2016. This has caused two exchange rates for the Yemeni riyal against foreign currencies, as the exchange rate of the dollar in the Houthi areas is equal to 535 riyals, while in the areas of the legitimate government it is 1900 riyals.

Within the framework of the peace consultations under the auspices of the United Nations and sponsored by the UN envoy to Yemen, Hans Grundberg, the economic file emerges as the most important file in the Yemeni crisis, as the UN envoy seeks to develop solutions that would unify the Central Bank’s revenues and the currency exchange rate.

Financial advisor Abdul Ghani Al-Sabry told Al-Araby Al-Jadeed that the Houthi authority imposed the independence of the old currency and raised its value over the new edition, and forcibly raised it against foreign currencies, disregarding the theories of supply and demand. The stability of the currency is also due to the increase in supply, including the result of all foreign transfers to Yemen as a whole arriving there, including transfers from expatriates and international organizations operating in Yemen, as well as the purchase of the legitimate government’s foreign currency and the currency of citizens that they obtain from expatriates’ transfers through its branches in the legitimate areas and sending them to Sana’a.

Division and money supply

Economic analyst Wahid Al-Foudai told Al-Araby Al-Jadeed that unifying the exchange rate requires close coordination between the two central banks in Aden and Sana’a, including unifying monetary and financial policies. Comprehensive economic reforms must be undertaken to improve the general financial situation, including enhancing confidence in the local currency and improving the business environment.

The economic analyst added that the stability of the security and political situation is an essential element for achieving the unification of the exchange rate, as stability enhances economic confidence and reduces risks, and international support can play an important role in unifying the exchange rate by providing financial and technical assistance to support the economy and enhance the stability of the currency.

The economic analyst pointed out that it is difficult to determine an accurate exchange rate in the event of currency unification due to many variable and influential factors, as the price will be subject to supply and demand factors, but the unified exchange rate can be estimated based on current data, as the price may range between 1000 and 1200 Yemeni riyals against the US dollar, taking into account possible improvements in monetary and economic policies after unification.

New Arab