The Other Yemen War: Houthi, Government Central Bank Rivalry Threatens Currency’s Collapse
23:34 GMT 11.08.2021 (Updated: 10:58 GMT 05.03.2023)
© REUTERS / FAWAZ SALMAN
Subscribe
Earlier this year, the Biden administration stepped up its push for the Houthis to agree to peace talks as Houthi forces threatened to capture Ma’rib, the Yemeni government’s last stronghold in the north and the capital of an oil-rich province.
On Tuesday, the Houthi-controlled Central Bank of Yemen in Sana’a condemned the latest move by its rival central bank in Aden, controlled by the Yemeni government, to delegitimize it abroad. The banks’ ongoing duel has helped drive inflation of the Riyal and amplify the ongoing humanitarian catastrophe.
In civil war-wracked Yemen, there are competing versions of several state institutions, including Yemen’s central bank and state news agency, Saba. The Houthi-led Ansaraallah movement, which captured the capital of Sana’a in 2014, has claimed inheritance of both institutions, but the government of Yemeni President Abdrabbuh Mansour Hadi has duplicated both in the southern city of Aden, its de facto capital.
Rival Banks
According to a statement by the Sana’a central bank carried by the Houthi version of Saba News Agency on Tuesday, the Aden bank is pressuring foreign institutions to transfer their operations from Sana’a to Aden by creating a list of “non-compliant banks” - essentially, a blacklist.
The Aden central bank reportedly intends to force "all importing companies and commercial establishments" to stop financial or banking operations, including extending lines of credit and facilitating the transfer of goods, with banks it designates as “non-compliant,” according to the statement. This, it notes, would harm the blacklisted banks’ relationship with "local authorities, banks, external financial and banking institutions and other international organizations."
Hodhod, a pro-Houthi news outlet, described the move as “a way to increase the financial power of the Saudi-controlled banking system in occupied southern Yemen.”
Hadi’s government has aimed to undermine the old Sana’a bank abroad since at least 2016, when then-Yemeni Prime Minister Ahmed Obaid bin Dagher appealed to the International Monetary Fund to freeze the Sana’a bank’s assets, arguing they were using the country’s foreign exchange reserves “in an irresponsible manner,” according to the Wall Street Journal.
According to Arab News, which is published by the Saudi Research and Media Group in Riyadh, which supports Hadi’s government, the Aden central bank set about attempting to bolster the Yemeni Riyal earlier this month by injecting billions into the financial system by reintroducing old bank notes.
Yemeni riyal banknotes are pictured at a local currency exchange in Aden, Yemen June 29, 2021. Picture taken June 29, 2021.
© REUTERS / FAWAZ SALMAN
Earlier this year, a panel of United Nations experts accused the Aden central bank of a scheme to illegally divert $423 million in Saudi money meant to buy food and other goods into the pockets of well-connected corporate investors. However, the same report also accused the Houthis of using $1.8 billion in aid money to support its war effort.
In 2019, the Houthi government, which calls itself the National Salvation Government, banned use of newer Aden-issued bank notes in Sana’a and other areas under its control, requiring exchange of one currency for the other at entry points and creating a severe cash crunch that helped set the present crisis in motion.
Inflation Pushes Prices Up
Arab News noted on August 4 that the Riyal was trading at 1,020 to the US dollar in the southern parts of Yemen controlled by Hadi’s government, while in early July it had been 980 riyals to the dollar; before the war broke out in 2014, it was 215 riyals to the dollar.
According to Reuters, the inflation is particularly strong in the south. Last month, the news agency reported the price in Aden for the same amount of bread had doubled in a month, helping to amplify the humanitarian crisis in the country.
The decreasing value has also driven up the prices of other commodities, including fuel - a worrisome development, since outrage over the end of fuel subsidies by Hadi’s government is what helped build the mass movement that propelled the Houthis to power.
"Aden's central bank has signed contracts with private companies to print 5.32 trillion Ryals over the last six years," Hashim Ismail, governor of the Sana’a central bank, told Reuters. "We can fairly say that it is three times what Sana’a central bank printed in 60 years."
Yemeni currency banknotes are counted on a counting machine at an exchange company in Sanaa, Yemen June 28, 2021. Picture taken June 28, 2021.
Rafat Al-Akhali, a fellow of practice at Oxford's Blavatnik School of Government, told Reuters the Aden government "continues to use questionable processes in payment of public salaries with no clear payroll for military and security forces."
Hadi’s government, by contrast, alleges the Houthis squandered $4 billion bank reserves on the war, while Sana’a says the money was used to import food and medicine, which have been in disastrously short supply.
Humanitarian Catastrophe
The war has been raging since March 2015, when Hadi was driven from Sana’a and fled to Riyadh, appealing to the Saudi monarchy for help against the Zaidi Shiite Houthis. The Saudis formed an international coalition of majority-Sunni nations, including the United Arab Emirates, Morocco, and Sudan, as well as the close Saudi ally of the United States, launching a disastrous war against the Houthis on air, land, and sea that has killed more than 233,000 people as of December 2020, according to the UN Office for the Coordination of Humanitarian Affairs.
The UN Children’s Fund (UNICEF) has described the situation in Yemen as “the largest humanitarian crisis in the world,” noting that more than 21 million of the country’s 29 million people require humanitarian assistance, especially food and medicine, which has been blocked from reaching the country by a Saudi air and naval blockade.
The US formally ended its support for Saudi offensive operations in Yemen earlier this year after US President Joe Biden took office, although he stopped short of ending overall military support for Riyadh, and has continued to station air defense systems in the country to protect against Houthi attacks.
Saudi command of the air gave the coalition a distinct advantage in the early years of the war, but more recently, the Houthis have been able to mount increasingly devastating drone and missile attacks into Saudi Arabia itself, targeting military bases and energy infrastructure, including the petroleum industry that underpins the Saudi economy and world gas prices.
