Central Bank Split Piles on Yemenis’ Problems
Civil war leads to crash in value of money sent back home that many families depend on to survive
Yemen’s approximately 30 million citizens face many hardships after more than five years of civil war. Over 24 million people are in need of shelter and food assistance, according to UN organizations. Now it has two different banknotes representing the same currency, each with a different exchange rate on the international market.
Ibrahim al-Same’i, 42, works for the Education Ministry in the internationally recognized government (IRG)-controlled Aden Governorate, for a monthly salary of 120,000 rials (about $475). He left the capital city of Sanaa in 2016 and went to Aden, leaving behind his family, after public sector salaries went unpaid.
Same’i told The Media Line he had been faced with a difficult choice: Either stay in Sanaa and work for the Houthi rebel-controlled Education Ministry without pay, except for a few donations provided by NGOs and a half salary every five months or more or move to the provisional capital and receive a regular salary from the ministry there.
“The latter option forced me to leave my family behind in Sanaa, due to the high living costs in Aden,” said Same’i.
Two central banks
The internationally recognized government’s decision to relocate government head offices to Aden included the Central Bank of Yemen. The Houthis fiercely rejected the decision and instructed the bank to continue with business as usual.
As a result, there are two central banks, one for the internationally recognized government and one for the Houthis’ de facto authority (DFA) in northern Yemen. This imbalance in the banking system and in fiscal policy has exacerbated an already deteriorating economy.
The cost of transferring money from the south, where Aden is located, to the north of Yemen, where Same’i’s family lives, rose, forcing him to send cash to his family with travelers to avoid paying the high money transfer fees.
Then, however, the DFA banned the circulation of the government’s new banknotes in the areas under its control, and he was no longer able to send cash to his family with travelers.
Same’i was forced to send money through money exchange companies, and the fees reached 37%, up from 10% before the banking system split meaning, for example, he has to pay 37,000 rials just to send 100,000 rials to his family.
He and a thousand more employees like him who work in southern governorates under the government’s control and have families in the DFA-controlled areas suffer greatly from the increase in transfer fees between the south and north of the country.
Same’i said that this has caused the members of his family great difficulties as they face an increase in the cost of food, and the money he sends them is not enough to cover their needs.
One country, two banknotes
In December 2019, the Central Bank in Sanaa banned the circulation and possession of the new banknotes, which were printed by virtue of a decision by the rival Central Bank in Aden in 2017.
Ansar Allah (“Supporters of God”), as the Houthi movement/DFA in the north of Yemen, is officially known, gave people one month to replace the new banknotes with old ones through the Central Bank in Sanaa.
People could hand over the new banknotes and get either the same amount in old banknotes or a receipt for the money and receive the cash later. A third option was to change the money into e-currency through one of the government-owned banks. This resulted in an economic division between the IRG- and DFA-controlled areas.
Ahmad Tayar, an economic analyst and freelance journalist, spoke to The Media Line about the effects of having two different banknotes of the same currency and treating them as if they were different currencies.
The Houthis’ decision to ban the new banknotes resulted in the Yemeni rial falling to a level more than 175% below its value before the civil war started on March 26, 2015, Tayar explained. “The Houthis’ continued use of the old currency created a type of financial stability in their banks, leading to their ability to control the exchange rates,” he added.
As a result of the flow of new banknotes in the south, their value has dropped. On the other hand, the Yemeni rial represented by the old banknotes in the north of the country has retained its value.
The exchange rate in the IRG’s areas reached 850 rials per US dollar; however, in the DFA areas the exchange rate is currently 600 rials per dollar.
Losing half the money
Lamess al-Ameri, 27, suffers from the same problem. She works in the northern Marib governorate, for a local non-governmental organization. She sends money to her family in the Ibb Governorate in the country’s south.
“My mother suffers from kidney failure; she needs treatment constantly,” said Ameri, adding: “My father’s and my older brother’s salaries are not being paid, which led me to work and to travel to other governorates.”
I lose half my money when I transfer it. My family should get this money; this is an injustice
The differences between the fiscal policies in the governorates under the control of the warring parties led to a dramatic increase in the transfer fees.
“I lose half my money when I transfer it. My family should get this money; this is an injustice,” Ameri said.
Reiada Dahan, who works at the Al-Najem Exchange Company, one of the largest companies for local money transfers which is headquartered in Sana’a governorate, but with branches in all governorates of Yemen, told The Media Line the increases in transfer fees has created major problems for the public.
“The differences between the fiscal policies affected exchange companies as well as the citizens’ public interests in a major way. The proportion of the transfers coming from areas under the IRG’s control is very large compared to other areas, which is due to the migration of the workforce and laborers to these governorates,” Dahan said.
The transfer fee has reached 40% in some cases, Dahan said, while the total number of wire transfers in a single year has dropped by 17% due to the high cost of transferring cash.
The Supreme Economic Committee in the DFA areas said in an earlier statement that the difference in the values of the banknotes was a part of the “war plan” and an effort to flood the market with illegal currency used by the Saudi-led Arab Coalition forces supporting the internationally recognized government in the civil war.
Dahan said the DFA’s ban on the new banknotes in the areas under its control was part of precautionary measures designed to limit the deterioration of the national currency and had succeeded.
“The fiscal practices and the arrangements undertaken by the Houthis’ cabinet contributed to the stability of the currency. It is true that they created one currency with two different values, which was reflected in the money transfer fees, but at the same time it contributed to stabilizing the currency in one area at the expense of another one,” he said.
The solution would be to unify the fiscal policies and end the banking division, ensuring the existence of a single value for the national currency, which would see the transfer fees return to the old cost of 0.5%, Tayar said.