“The decision to restrict transactions to the Yemeni rial was closely linked to the rapid market shifts observed during the three weeks preceding its issuance, notably the appreciation of the local currency against the dollar following interventions by the Central Bank.”

Abdullah Al-Shadli (South24 Center)

On August 11, 2025, Yemen’s Cabinet enacted a resolution prohibiting the use of foreign currencies in all domestic commercial transactions, mandating the exclusive use of the national currency—the Yemeni rial. The directive encompassed all forms of sales, purchases, and contractual agreements, signaling a decisive shift in monetary governance and an effort to reassert the rial’s role as the sole legal tender for local transactions.

The resolution was introduced at a critical juncture, following a notable appreciation of the national currency. The exchange rate of the US dollar fell from historic highs exceeding 2,900 rials in mid-July to approximately 1,617 rials in early August. This sharp correction has given rise to cautious optimism among a population burdened by prolonged inflationary pressures, but has also raised concerns about the sustainability of the rebound in a highly volatile market.

While some analysts viewed the decision as a vital intervention to restore sovereignty of the national currency and curb speculation, others warned it could be a risky policy maneuver—one that may exacerbate instability if not accompanied by comprehensive reforms and strict institutional enforcement. The move has thus sparked a wide-ranging debate over its practical viability, the benefits it could deliver, and the constraints it faces within Yemen’s complex and divided market.

The Decision in a Fragile Context

The decision to limit transactions to the Yemeni rial was closely linked to the rapid market shifts in the three weeks leading up to its announcement, when the local currency appreciated against the US dollar following interventions by the central bank and government measures aimed at reducing currency speculation. However, this recovery failed to inspire broad optimism, as many perceived it as a short-term correction, vulnerable to reversal with any new financial or political crisis.

This skepticism reflects a deeply entrenched erosion of trust in the national currency and the credibility of monetary institutions. Since 2015, Yemeni citizens have witnessed a constant depreciation of the rial, reinforcing the perception that it is on an irreversible downward spiral.

Economist Dr. Issa Abu Haleqa explains that this prolonged instability “has undermined public confidence in the Central Bank and the banking sector’s ability to manage liquidity, regulate exchange markets, and contain speculative behavior.” Speaking to ‘South24’, he added: “This reality has left citizens and merchants in a constant state of uncertainty regarding the Central Bank’s effectiveness, particularly in light of the absence of effective measures over the past several years.”

Accordingly, any attempt to enforce exclusive reliance on the rial must also contend with an environment steeped in skepticism and shaped by adverse historical experience, thus placing before the government a dual task: to reestablish monetary discipline and rebuild public trust in a currency that has only witnessed chronic depreciation.

Expected Benefits

Despite the widespread apprehension surrounding the decision, economic experts argue that restricting transactions to the Yemeni rial could yield significant macroeconomic dividends—provided it is implemented with institutional rigor. Beyond reinforcing confidence in the national currency, the measure serves as an instrument to suppress speculative activity, enhance the Central Bank’s monetary policy, and curb the phenomenon of “currency dualism” that has increasingly characterized Yemen’s domestic economy.

Mustafa Nasr, head of the Center for Economic Media Studies, described the move as “a long-overdue corrective step”, noting that “it made little sense to continue using foreign currencies within the local economic cycle, as this distorted both the fiscal and monetary policy.”

Speaking to ‘South24’, Nasr added: “The decision boosts confidence in the national currency and puts an end to the excessive circulation of foreign currencies in the local market, where they are not required for internal transactions.”

Signs of implementation have already begun to emerge, with several public institutions adopting the resolution early. Aden University announced that all tuition fees would be collected in Yemeni rial, while the Land Transport Authority instructed companies to standardize their transactions in the national currency. The Minister of Justice and the Attorney General mandated that courts and notarization offices register contracts exclusively in rial. Similar directives were issued by the Ministry of Industry and Trade, Yemen Airways, and other entities.

Nasr emphasized that the success of these measures hinges primarily on institutional compliance. “The first requirement,” he said, “is to oblige all government entities to refrain from using foreign currencies. Any exception generates additional demand for them, fuels speculation, and incentivizes illicit outflows."

Implementation on the Ground

Although the decision to restrict transactions to the Yemeni rial has entered into effect, practical evidence on the ground reveals significant gaps. A large portion of commercial activity continues to be conducted in foreign currencies, particularly in sectors linked to imported goods, real estate, and high-value transactions. For instance, while contracts may be officially registered in courts using the rial, in compliance with the decision, the underlying agreements between parties are often denominated in US dollars or Saudi riyals—an informal workaround to hedge against exchange rate volatility.

This circumvention reflects the structural complexities of Yemen’s dual-currency economy, where the private sector finds itself in direct confrontation with the consequences of the new monetary policy.

Majed Al-Namla, executive director of Al-Akhwain Solar Energy Company, spoke to ‘South24’ about the scale of these challenges: “The decision has directly impacted our daily operations, especially with local suppliers, as we are now required to use the Yemeni rial exclusively. With foreign suppliers, the situation is more complicated—they insist on payment in dollars, forcing us to rely on banks or money exchangers to bridge the gap and process payments. This has increased transaction costs and delayed deal completion.”

Al-Namla added that consumer behavior also reflects a divided monetary landscape: “While some clients adhere to paying in the national currency, others prefer dollars or Saudi riyals to preserve the value of their money and avoid exchange rate fluctuations. This disparity has created tension in the market and noticeably affected sales.”

Persistent Challenges

Despite the bold nature of the decision, it faces a series of structural challenges that may limit its effectiveness in the short term. Foremost among these is the issue of pre-existing contracts and commitments denominated in US dollars or Saudi riyals, whether for apartment or car payments or commercial projects. These contracts represent a real problem that threatens to undermine the decision if not addressed with realistic solutions.

Dr. Issa Abu Haleqa cautions against disregarding such contracts, stressing that “the principle of honoring contractual obligations is legally binding, meaning that agreements signed in Saudi riyals or dollars must be fulfilled in the same currency until full repayment.” He argues that enforcing payment in Yemeni rials for these obligations could paralyze key sectors such as real estate and automotive sales, and may drive investors away due to heightened uncertainty.

Abu Haleqa advocates for a phased approach to resolving this issue, through state-regulated settlement frameworks, such as establishing specialized committees or allowing repayment in local currency at the official exchange rate. This would safeguard the rights of both creditors and debtors and shield citizens from severe financial losses.

Beyond these contractual issues, another major challenge lies in the decision’s ability to curb the informal currency markets. While strict enforcement may reduce speculative activity, experts warn that currency traders and exchange firms could migrate to alternative informal channels—including encrypted messaging platforms or unregulated networks—potentially reproducing the crisis in more opaque and harder-to-regulate forms.

Institutional Capacity of the Central Bank

The resolution’s success ultimately hinges on the Central Bank’s ability to manage currency markets, regulate liquidity, and deploy its monetary policy instruments effectively. Expert opinions diverge on this point: some argue that the challenge lies in the underutilization of available tools, while others believe the Bank has already initiated meaningful steps toward gradual stabilization.

Dr. Sami Mohammed Qassem, Associate Professor at the Faculty of Economics, University of Aden, contends that the issue is not the absence of monetary instruments, but rather their weak application. Speaking to ‘South24’, he said: “Central banks around the world possess the necessary instruments to regulate monetary markets, but activating these tools requires coordinated action with the Attorney General’s office and security agencies.”

He noted that the Central Bank’s biggest challenge stems from the multiplicity of local and security authorities, the absence of a unified enforcement mechanism, and the pervasive intrusion of politics in the economy and trade spheres. These factors, he argued, have made it difficult to impose strict compliance measures.

Conversely, Abu Haleqa adopts a more optimistic view, pointing out that the Central Bank already possesses effective monetary tools and has begun activating them. He cited the formation of a special committee to regulate imports and designate authorized banks for covering traders’ expenses, closing a loophole that previously fueled the black market by up to 30%, and described this as a significant step toward the decision’s success.

From a business sector perspective, however, the outlook remains cautious. Engineer Majed Al-Namla believes the Central Bank’s ability is still limited when compared to the size and volatility of the parallel market.

He added: “While there are efforts to enhance oversight, the market remains unstable. Unless foreign currency reserves are strengthened and monetary policies unified, implementing the resolution effectively and sustainably will be extremely difficult.”

The Future and Possible Scenarios

Despite the ongoing debate surrounding the resolution, experts agree that its long-term viability depends on the Central Bank and the government’s ability to transform it from a procedural measure into a coherent monetary strategy that restores confidence in the national currency.

Mustafa Nasr emphasizes that the resolution’s success depends on the Central Bank’s ability to control the money supply and manage the circulation of the rial—enabling it to regulate the market and stabilize the exchange rate more effectively. He considers this the cornerstone for turning the resolution into a durable instrument of monetary stability.

Dr. Issa Abu Haleqa, meanwhile, proposes a broader policy framework that integrates monetary reform with economic revitalization. He argues that the solution extends beyond enforcing the use of the rial in transactions and requires attracting new sources of hard currency to bolster the Central Bank’s reserves. To that end, he calls for a national investment conference that would enable companies and business leaders to explore economic opportunities in Yemen, facilitate foreign direct investment and generate sustainable inflows of foreign exchange.

He believes that international support will be a decisive factor, citing a global trend led by institutions such as the World Bank, the U.S. Treasury Department, and the European Union, to help restructure and support Yemen’s banking sector.

However, the outlook is not uniformly optimistic. Dr. Sami Mohammed Qassem warns that failure by the Central Bank and the government to implement and sustain these reforms could trigger a broader collapse in the value of the rial and erode public trust in future monetary measures. He adds that losing control over monetary policy would deprive the legitimate government of one of its most critical instruments for managing economic and political affairs—potentially destabilizing the broader political system.

Between these competing visions, it becomes clear that the resolution stands at a crossroads: it could either evolve into a cornerstone for rebuilding monetary sovereignty through strict enforcement, coordinated implementation, and external support—or it could devolve into a symbolic gesture that the market quickly circumvents, deepening the crisis of confidence and accelerating economic decline.