REPORTS

How Do Experts Assess the New Measures Taken by the Yemeni Central Bank in Aden?

Reuters

Last updated on: 13-03-2025 at 2 PM Aden Time

language-symbol language-symbol

In this report, ’South24 Center‘ discusses with banking and economic experts about the Yemeni riyal crisis and the latest measures taken by the Central Bank in Aden.


Abdullah Al-Shadli (South24)


Amidst Yemen’s precarious economic scenario, marked by an unprecedented collapse of the local currency (riyal) and intense speculation in the parallel market, the Central Bank in Aden is faced with an uphill task in rebooting the monetary policy.


In light of the erosion of financial stability, the Central Bank has sought to impose strict regulatory procedures. However, these measures raise questions about their effectiveness in curbing the economic chaos and whether they will succeed in halting the continuing slide in the value of the local currency.


In this report, ’South24 Center‘ discusses with banking and economic experts about the Yemeni riyal crisis and the latest measures taken by the Central Bank in Aden.


Circulars and New Measures


On February 23, the Central Bank announced a package of new regulatory measures, including firm restrictions on banking and transfer processes. The Central Bank also imposed a ban on carrying out foreign currency transactions via electronic applications.


The new measures, which came as part of the Central Bank’s efforts to combat local currency speculation, include accurate documentation of customers’ data in the foreign exchange transactions. This is along with obligating exchange companies to sell foreign currency surpluses to licensed banks at the market price daily.


The new instructions also disallow direct dealings between exchange companies and local money transfer agents regarding purchase and sale of foreign currencies. The measures also prevent them from maintaining credit or debit accounts with other exchange companies.


In another circular, the Central Bank ordered immediate suspension of buying and selling transactions via electronic applications. It only allowed the conversion of foreign currencies into the Yemeni riyal, according to the mechanisms adopted by the Central Bank and based on the market prices. The Central Bank attributed this step to the need to avoid any possible risks in light of the new developments.


The Central Bank stressed that it will intensify its surprise field inspections to ensure that money exchange and transfer companies adhere to the new instructions as well as match the amounts of cash in their lockers with the balances in the financial records. The Central Bank warned violators of strict legal measures that may lead to suspension or revocation of their license.


The Futility of these Measures


Secretary General of the Southern Money Changers Syndicate Adnan Mohammed AlـHameed criticized the Central Bank’s latest measures, describing them as “lax” and “weak”. He claimed that the syndicate had submitted several proposals and solutions but they fell on deaf ears.


He told ’South24 Center‘: “The Central Bank’s latest decision that obliges the exchange companies to record the customers’ data and photocopy their identity cards during the transactions is impractical and time-consuming.” He added that these steps are not stipulated in the Money Exchange Law.


However, academic Dr. Saudi Ali Obeid, Member of the Southern Transitional Council’s (STC) Economic Committee, told ’South24 Center‘ that the Central Bank’s theoretical foundation is sound, including the laws and regulations.


But Obeid believes that in terms of actual performance the Central Bank faces big challenges due to practical reasons. 


According to him, “the political reality resulting from the latest war and the consequent absence of state structure has created a kind of imbalance and lack of clarity in the Central Bank's administrative practices. This has obstructed activation of many of its functions, including managing monetary policies such as determining the exchange and interest rates”.


He highlighted the Central Bank's inability to effectively manage the economic operations, and believes that this has negatively affected the public budget revenues. Obeid added that the Aden Central Bank's administrative structure, which includes some persons who moved from the Central Bank in Sanaa, could lead to breaches that would affect its stability and independence. 


Economic expert Moustafa Nasr, Chairman of the Studies and Economic Media Center, endorsed the Central Bank's measures. He told ’South24 Center‘ that the latest steps taken by the Central Bank “are necessary to confront the current chaos in the parallel market which suffers from instability”. 


Nasr added that “these steps are considered an urgent response to the volatile market which requires documenting data of all exchange market dealers. This is an important regulatory step”. He stressed “the importance of controlling the trading monetary supply and recognizing the nature of the money movement in the market”. 


Nasr is of the opinion that “these measures aren't a magic solution for the currency collapse or speculation problems. They are part of an integrated package of measures that should also include monitoring the monetary supply and meeting the market's needs for hard currency for import operations”. 


Economic expert Waheed Al-Fawdai agreed that these measures are important to facilitate organizing the banking work. He told ’South24 Center‘: “These measures are based on the Money Exchange Regulation law. Additionally, they reflect a strong desire by the Central Bank to enhance transparency and financial accountability.”


He added: “Issuing electronic invoices delivered to customers after implementing their transactions is considered an important move to build an accurate database in a way that facilitates financial monitoring and the tracking process.” 


Local Currency Crisis

 

In a statement issued on February 12, the Central Bank in Aden mentioned the obstruction being faced by government parties seeking to unduly benefit from the sovereign resources needed to provide basic services. It urged the Presidential Leadership Council (PLC) and the government to put an end to such illegal practices and ensure redirecting of all revenues to the general government account. 


It also called for supporting the currency stability, protecting the banking sector, and taking urgent measures to resume oil exports and operate sovereign resources. The statement, considered by some as a declaration of surrender and defeat, has renewed debate about the ability of the Central Bank to stop further deterioration of the Yemeni riyal.


Dr. Saudi Ali Obeid believes that the local currency crisis “is derived from a complicated set of factors, including the big gap between economic resources in the government-held areas and spending requirements, leading to a remarkable economic deficit”.


He pointed out that while the market has a big monetary supply it isn’t under the Central Bank's control. This has contributed to foreign currency speculations. He indicated that traders seek foreign currency to purchase commodities from abroad due to the bank's inability to provide them with their required amounts. 


Moreover, Obeid noted that the displaced persons coming from the Houthi-held areas play a role in the exacerbation of the crisis as they buy the foreign currencies to transfer them to their families, especially after the Houthis banned the use of the new banknotes of the Yemeni riyal.


Moustafa Nasr believes that the chaos in the parallel market is one of the main factors leading to the dollar crisis and the collapse of the riyal against other currencies.


He stressed that the monetary transactions outside the banking sector are still high in a way that makes it hard to control unofficial currency movement. He explained that the customers’ trust in banks has decreased as a result of the repeated crises, including bankruptcy of some banks. This has pushed people to seek alternative ways for financial transactions. 


Adnan Al-Hameed warned that currency speculators, who often come from North Yemen, make use of the current situation for more currency speculation by using accounts linked to Southern money exchange companies. 


Required Steps


Chairman of the Studies and Economic Media Center, Nasr, stressed that the adopted measures should be part of an integrated package, including monitoring the cash mass and meeting the market's needs for hard currency for import operations.


Nasr stressed the “need for clear rules to regulate the work of exchange companies”. In certain stages, this may require shutting down some companies that aren't committed to following the clear and transparent standards, according to him. Moreover, he highlighted the need for boosting trust in the banking system to bolster economic stability.


Waheed Al-Fawdai called for strengthening field monitoring by specialized inspection teams to ensure full compliance with the rules and to apply strict penalties, including suspending or canceling licenses, in case of violation or non-compliance with the instructions. 


Nonetheless, the Secretary General of the Southern Changers Syndicate Adnan Al-Hameed believes that the solution lies in activating the monitoring of exchange companies and to take out their financial statements. This would help to determine the amount of daily currency transactions for each exchange company, according to him. 


He said: “Based on that, a payment committee can be established to oblige exchange companies to transfer all their currency purchases to the Central Bank or other state banks such as the CAC Bank or the National Bank. This will allow the Central Bank to perform its role and sell the currency to the traders”.


He indicated that this mechanism “will ensure proper circulation of money and limit speculation”. He added: “Corruption plays a big role in keeping the situation like this despite the many solutions. There is no system within the Central Bank, and matters are proceeding according to the whims of powerful figures”. 


Achieving monetary and economic stability hinges on addressing the main reasons for the crisis, foremost of which is the cessation of oil exports since October 2022 due to the Houthi attacks on the ports of South Yemen. Furthermore, there is an urgent need for transparency, accountability, activating the role of regulatory institutions, and building people's trust in the banking system. 


A question remains: Can the Central Bank in Aden manage this critical stage with minimal losses? Can it make use of its legal and sovereign tools to at least maintain the current value of the Yemeni riyal even if it doesn't succeed in improving it? 


Journalist at South24 Center for News and Studies

Note: This is a translated version of the original text published in Arabic on March 8, 2025.

Shared Post
Subscribe

Read also