The Central Bank's measures, including the establishment of the unified network system and its firm response to non-compliant banks, are essential steps towards ensuring financial stability.

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Ahmed Bahakim (South24) 

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Central banks play a vital role in maintaining the stability of a country's financial system. They are responsible for formulating and implementing monetary policies, regulating financial institutions, and ensuring the smooth functioning of payment systems. The Yemen Central Bank's recent measures align with its mandate to promote financial stability and foster economic growth. Financial stability is crucial for the overall well-being of an economy. It promotes investor confidence, encourages economic growth, and facilitates the efficient allocation of resources. By implementing measures that enhance financial stability, the Yemen Central Bank is taking proactive steps to safeguard the country's economic future. [1]

Regardless of the protracted military conflict, Yemen's government and the Houthi rebels find themselves engaged in another battle - a currency war that has created a stark disparity in the value of the Yemeni riyal. Until late 2019, both the government and the Houthis used the same banknotes. However, the rebels imposed a ban on new banknotes printed in government-run Aden, citing concerns about inflation. This divergence in money supply has resulted in a significant depreciation of the riyal's value in government-controlled areas, where it now stands at around 1,700 to the dollar. In contrast, the value remains relatively stable at 600 in Houthi-controlled zones. [2]

The consequences of this currency divergence have been detrimental to citizens and businesses in both government and rebel-controlled areas, but particularly so for those in government-controlled regions due to rampant inflation. The discrepancy in riyal values has left many individuals and businesses financially strained, exacerbating the already dire economic situation in Yemen.

The Yemen Central Bank has recently implemented a series of measures that were long overdue since its relocation to Aden. These measures, however, have not had any adverse effects on the interests of various stakeholders, including the owners of exchange companies, citizens, and merchants. One notable measure taken by the Central Bank is the establishment of a unified network that enables the tracking of fund movements. It is important to note that this measure does not imply a separation of the transfer process between areas under legitimate control and those under Houthi control. Transfers will continue to operate normally across all regions.

The implementation of the unified network system has empowered the Central Bank to closely monitor the movement of funds within exchange companies and banks. This enhanced oversight allows the Central Bank to track the origin and destination of funds, ensuring transparency and accountability in financial transactions. Such measures are integral to the Central Bank's mandate and represent a significant step forward in its operations. The Central Bank's vigilance in monitoring fund movements serves to curb speculation, which has been a contributing factor to the currency's collapse. It is worth noting that those who reject the Central Bank's procedures are often involved in illicit activities such as smuggling, money laundering, and currency speculation. By taking a firm stance against non-compliant banks, the Central Bank aims to put an end to such practices and restore stability to the financial system. [3]

Related: Disturbance in Floating Exchange Rate in Yemen 

The Yemen Central Bank has taken decisive action against certain banks that have refused to join the unified network, signaling their rebellion against the established procedures. In response, the Central Bank has chosen to suspend dealings with these banks [4], effectively addressing the issue at hand. Previously, when a Houthi merchant in Sanaa wanted to import goods from abroad, they would pay in Yemeni riyals to the Commercial Bank in Sanaa. The bank's branch in Aden would then obtain the necessary auction from the Central Bank, cover the merchant's expenses in dollars, and facilitate the transfer of goods to the port of Hodeidah. However, with the recent actions taken by the Central Bank, if the Commercial Bank were to carry out the same operation, the bank would not be prevented from doing so. However, the merchant would now be required to ensure that the goods reach the port of Aden, where taxes and customs duties would need to be paid.

This change in procedure by the Central Bank has had a significant impact on the ability of commercial banks to engage in illicit activities such as money smuggling and currency speculation. The enhanced financial oversight provided by the Central Bank's measures ensures that the movement of money is closely monitored. This oversight has been crucial in curbing speculation and preventing the collapse of the currency. It is important to note that the banks that refused to join the unified network were primarily based in Sanaa and were implicated in illicit activities. The Central Bank's actions against these banks demonstrate its commitment to upholding the integrity of the financial sector and protecting the broader economy.

The Yemen Central Bank's measures, including the establishment of the unified network system and its firm response to non-compliant banks, are essential steps towards ensuring financial stability in the country. By enforcing transparency and accountability, the Central Bank aims to protect the economy from illicit activities and foster a climate of trust and confidence among stakeholders.

These measures are part of broader efforts to address the challenges faced by Yemen's financial system, which has been affected by the country's ongoing conflict and political fragmentation. The split of the Central Bank into two branches, one in Sanaa under Houthi control and one in Aden internationally recognized, has created economic divisions and hindered the stability of the Yemeni riyal. The situation has led to different exchange rates and challenges in currency circulation. [5]

Related: Central Bank and Currency Deterioration in Yemen 

In conclusion, the currency war between Yemen's government and the Houthi rebels has created a significant disparity in the value of the Yemeni riyal. The resulting financial strain on citizens and businesses further compounds the already dire economic situation in the country. The Yemeni Central Bank's measures to address the currency war are crucial in restoring stability and transparency to the financial system. However, a comprehensive political resolution is necessary to address the underlying causes of the conflict and alleviate the suffering of the Yemeni people.