Economy

Currency crisis brings new hardship to war-weary Yemen

By AFP

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Old and new Yemeni banknotes are pictured at a money exchange office in the southern port city of Aden on January 23rd. [Saleh al-Obeidi/AFP]

A flare-up of a currency war between Yemen's foes has sent the riyal crashing, aggravating a humanitarian crisis that has already driven millions to the brink of famine after five years of conflict.

The confrontation was sparked when the Iran-backed Houthis (Ansarallah), who control the capital Sanaa and most of the north, banned the use of new banknotes printed by the Central Bank in Aden which is run by the internationally recognised government.

The ban on the notes, which were first issued three years ago, came into effect on January 19th when residents and money changers stopped dealing with them under the threat of a 10-year jail term, according to sources close to the militia.

The Houhis insist they are safeguarding the people against high inflation, but the move has slashed purchasing power and effectively created two exchange rates -- around 682 to the dollar in Aden and 600 in Sanaa and the north.

The currency's value has dropped some 15% in the south in the past five weeks, and about 7% in the north, in a slide that shows no sign of slowing.

In the marketplaces of Yemen, stalls are piled high with tomatoes, onions and bananas, while nearby shopkeepers offer racks of clothes and consumer goods.

But ordinary people are increasingly distressed at the loss in value of their cash, which has inflicted more misery in a long war that pits the Houthis against the government which is backed by a Saudi-led coalition.

"Prices are extremely expensive, we are not receiving our salaries and the situation is going from bad to worse," said Abdo, a resident of the port city of Aden.

In Sanaa, which has been under Houthi control since 2014, residents also hit out at the measure.

"The ban has resulted in massive harm to citizens. Many of us own quantities of the new banknotes but from now on we will not be able to use them to buy our day's food," Abdulaziz Ali told AFP.

"With a rapidly depreciating riyal and disrupted salary payments, we are again seeing some of the key conditions that brought Yemen to the brink of famine a year ago," Ramesh Rajasingham, who co-ordinates humanitarian aid in the country, told the UN Security Council earlier this month.

"We must not let that happen again," he said, adding that even if it escapes famine, Yemen will remain the world's worst humanitarian crisis in 2020.

'Blackmailing the people'

The Yemeni government moved the Central Bank from Sanaa to Aden in 2016 in order to have effective control on monetary policy, currency and payment of wages.

But the bank's historic home in Sanaa is still operating under the Houthis.

The Sanaa Centre for Strategic Studies said in a recent report that the tussle threatened to collapse the riyal-based system and had driven the country towards the use of hard currencies, mostly Saudi riyals and US dollars.

"A population in which millions already verge on starvation is set to bear increasing costs, further eroded purchasing power and a deterioration in the humanitarian situation resulting from the escalating currency war," it said.

Anthony Biswell, an economic analyst from the Sanaa Centre, said that the north was suffering from a shortage in supply of the old riyals, and that ordinary citizens were turning to the black market to convert their new notes.

"For the south, there will be an excess of the newly printed bank notes in circulation... the expectation is it will lead to inflation," he told AFP.

"The goods are coming in. The major issue is purchasing power and people's ability to go buy commodities that are available in the market," he said.

The government of President Abd Rabbu Mansour Hadi said the Houthis' measure was "oppressive and will devastate the economy", accusing the militia of "blackmailing the people".

"The prime minister met with ambassadors of the EU and we called on them to apply pressure" on the Houthis to scrap the ban, Yemen's Planning and International Co-operation Minister Najeeb al-Ouj said.

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