"The circulation of counterfeit currency by the Houthis will trigger severe disruptions, as stakeholders, particularly businessmen, will rush to convert it into foreign currencies..."

Abdullah Al-Shadli (South24)

A Monetary Escalation by the Houthis

In mid-July, the Iran-backed Yemeni Houthi group took a critical monetary step described as escalatory and dangerous: issuing new currency --minting a 50-riyal coin and printing a new 200-riyal banknote.

This move—coming over a year after the Houthis minted a 100-riyal coin in April 2024—sparked controversy on both economic and political fronts, especially as it occurred amidst a deepening financial conflict between the internationally recognized Yemeni government and the Houthis.

While the Houthi-controlled central bank in Sanaa described the measure as a "restoration of the monetary system" with no increase in the currency supply, the Yemeni government and foreign embassies viewed it as a direct breach of prior economic understandings and a serious threat to the country’s fragile financial stability.

This development cannot be separated from the broader context of the Yemeni crisis, which has seen a monetary division since 2019, when the Houthis banned newly printed banknotes issued by the central bank in Aden. This created two versions of the Yemeni currency with differing values, plunging the country into inflation and economic contraction.

Today, the Houthis’ new currency issuance appears to signal a new phase of financial confrontation—not just over liquidity management but also the assertion of economic and political influence.

Background of the Monetary Split and Printing Motives

The Houthis’ announcement of issuing new currency reopens the issue of Yemen’s monetary fragmentation, which began in late 2019 when the group decided to ban circulation of newly-printed banknotes by the Central Bank in Aden. This decision effectively divided the national currency between Houthi-controlled areas and those of the internationally recognized government, creating a financially complex landscape marked by severe liquidity shortages—especially in the North.

Although the decision helped stabilize the exchange rate in Sanaa at around 530 riyals per dollar, the currency collapsed over the following years in government-controlled areas, reaching nearly 2,900 riyals per dollar by July 20251. The government in Aden argues that this currency stability in Sanaa "does not reflect the true financial reality”, attributing it to coercive measures and near-total disruption of import and cash circulation, rather than actual economic strength.

Over time, the Houthi-controlled areas have begun suffering from an acute shortage of paper banknotes, forcing the authorities to rely on severely worn-out bank notes that have lost much of their functionality.

In a July 15 statement, the Houthi central bank claimed the goal of the new issuance was simply to "replace damaged banknotes" without increasing the currency supply. It added that the release had been postponed allowing time for "peace entitlements” and blamed what it called "Saudi evasion from the roadmap" for forcing its hand.

Economist Rashid Al-Haddad, based in Sanaa, supported the Houthis’ explanation, telling ‘South24 Center’: “This was merely a replacement of worn-out banknotes with identical quantities and denominations, consistent with globally recognized banking protocols, including serial numbers. This move does not aim to cover a budget deficit through inflationary printing, as the other side in Aden does, but rather recycles the existing currency.”

However, economic experts view the issue as deeper than a mere technical swap, characterizing it as a Houthi attempt to circumvent the monetary policy set by Aden’s central bank. Mustafa Nasr, head of the Studies & Economic Media Center (SEMC), described the action as “a pivotal shift” in the context of the financial conflict.

He told ‘South24 Center’: “This development marks a new phase in the economic confrontation, which has now turned into a full-fledged war.” He noted that the Houthis are trying to address liquidity shortages in areas under their control, adding that the negative impact of the process “depends on how it's managed”.

He continued: “If the measure is limited to replacing damaged banknotes without expanding the overall currency supply, its effects may remain confined to their regions.”

Dr. Jaafar Hussein Muneim, recently appointed Head of the Economic and Service Authority of the Southern Transitional Council, believes the move carries political motives, suggesting that Sanaa seeks to reinforce a separate monetary reality.

Muneim told ‘South24 Center’, that the Houthis "exploited the economic de-escalation" to push through this step.

Economic Risks and Repercussions

Despite Houthi assurances that the new printing won’t enlarge the currency supply, concerns are growing over its potential negative impact on Yemen’s deteriorating economy—both in Houthi-controlled areas and nationally.

On July 17, UN Envoy to Yemen Hans Grundberg warned that "unilateral measures threaten to deepen the financial divide and increase economic fragility”, urging adoption of a unified strategy to restore confidence in Yemen’s monetary sector.

On the same day, the French and U.S. embassies released separate statements condemning the Houthis’ move as “illegal” and “irresponsible”, affirming their exclusive recognition of the Aden-based central bank.

On July 16, a meeting between the head of the Southern Transitional Council and the French Ambassador to Yemen addressed the Houthis’ financial measures, especially the new currency printing. According to the Council’s announcement, the ambassador reiterated France’s condemnation of the move, calling the steps dangerous and irresponsible, stressing that they would exacerbate the economic collapse and deepen the monetary divide.

Mustafa Nasr predicted that each side will take retaliatory measures to protect their currencies, warning: “Even if this move appears limited, it remains illegal since it originates from an unrecognized bank and will further intensify the isolation of Yemen banking sector.”

Muneim echoed this concern, warning that “circulating counterfeit currency by the Houthis will spark serious disturbances, as businessmen and others rush to convert it into foreign currencies. This behavior will erode trust in the currency, reinforce the monetary division, and deepen the economic crisis.”

He further cautioned that unchecked unilateral printing could trigger total separation between the northern and southern monetary markets, accelerating economic migration from Houthi regions to the South—placing immense pressure on southern resources and services.

He added: “Without decisive countermeasures, we may face a new wave of forgery targeting banknotes in the South, which would flood monetary markets with fake bills and hasten the national economic collapse.”

Al-Haddad offered a contrasting view, arguing the move could have “positive effects on commercial activity” in Sana’a, and blamed Aden’s monetary policy for the financial downturn. He said: “Sana’a has preserved the currency’s purchasing power, while Aden’s disastrous monetary strategy caused the exchange rate to exceed 2,900 riyals per dollar.”

Political Implications

The Houthis’ currency printing cannot be viewed in isolation from its political dimensions. The group seeks to portray the step as part of its “economic independence,” positioning itself as a legitimate financial authority capable of administering areas under its control—in direct defiance of the internationally recognized Yemeni government.

It also constitutes a major breach of the economic understandings reached in July 2024 under UN auspices and Saudi pressure, which aimed to de-escalate tensions between Aden and Sana’a over economic and monetary issues.

Mustafa Nasr stressed that the agreement was not a ceasefire in the traditional sense but rather "a détente imposed by regional mediation and pressure on the Yemeni government to roll back decisions concerning banking and the financial sector—under Houthi threats. It was essentially a one-sided truce to which the Houthis felt no obligation."

He added: “Any notion of a truce effectively ended with the U.S. sanctions on entities and individuals in Houthi-controlled areas,” suggesting that the Houthis now consider the accord null and void, which explains their latest move.

Jaafar Muneim agreed, asserting: “These understandings are practically void. The group has never adhered to previous agreements, starting with the Stockholm Accord in 2018.” He continued: “The Houthis reject the concept of the state, and do not honor agreements, rather they operate by the logic of force and imposition.”

Conversely, Al-Haddad blamed the Yemeni government in Aden for undermining the accord, stating: “They sabotaged it by welcoming Washington’s designation of the Houthis as terrorists, then exploited it to pressure banks and damage the entire Yemeni banking sector—even though the agreement aimed to halt escalation.”

Future Scenarios and Strategic Choices

The Yemeni government has yet to take concrete action in response to the Houthi move, other than warning against the circulation of the new currency. Prime Minister Salem bin Buraik declared the issuance “a direct threat to financial stability,” stressing during a July 16 meeting that “the Cabinet deems these actions legally null and void.”

On July 22, Bin Buraik reaffirmed—during a meeting in Aden—that the government is advancing plans to confront what he termed as the “economic warfare” launched by the Houthis, in coordination with the Presidential Leadership Council and international partners.

Earlier, on July 20, the central bank decided to move the headquarters of the Deposit Insurance Corporation from Sana’a to Aden to strengthen control over the financial system—a delayed but symbolic move signaling resumed economic escalation.

Mustafa Nasr expects continued escalation between the two sides over monetary issues, stating: “The outcome hinges on how each party manages the file. The government formed committees to regulate the currency market and cut off the Houthis’ revenue sources, while the Houthis will try to find ways to secure their foreign currency needs.”

Nasr believes that Yemen now faces two primary scenarios: “Either the economic war continues to escalate, or there is a proactive regional and international intervention that succeeds in reviving the peace roadmap, which had been proposed but never finalized.”

Similarly, Rashid Al-Haddad presents two options. The first is “to implement the entitlements outlined in the roadmap, especially resolving the economic file and disbursing salaries to employees in areas controlled by the Sana’a government.” The second, as he put it, is “a move by the Aden-based central bank toward further escalation, drawing strength from the U.S’. decision.”

For his part, Jaafar Muneim paints a bleaker picture, asserting that “all indicators point to a four-dimensional economic collapse.” He places blame on both sides, adding: “On one hand, the legitimate government suffers from fragmentation, corruption, and lack of a unified vision, while on the other, the Houthi group exploits this collapse to advance its own agenda.”

Muneim warns that Yemen’s economy is on the brink of total collapse, stating: “The middle class has been eroded, and the poor class has expanded in unprecedented ways. If efforts do not urgently converge to find a comprehensive political and economic solution, the coming phase will be even more catastrophic—and its repercussions will reach everyone without exception.”

This landscape reveals the fragility of Yemen’s economic structure and the extent of the risks posed by the recent monetary escalation. It can be said that if this situation continues without active intervention by the international and UN communities, the economic crisis may intensify further—potentially reigniting the engines of war.

 Notably, the Yemeni rial has witnessed a significant improvement in its exchange rate in recent days. On Saturday, August 2, the dollar traded at approximately 1,945 rials, marking a sharp recovery from the nearly 2,900 rials recorded in late July.)