• Home
• News Article

Speculators contest CBY on exchange rate

SANA'A, Sept. 5 -- Following several International Monetary Fund (IMF) directed reforms on the exchange rate regime, the Central Bank of Yemen 's ( CBY ) new approach to managing the devaluation of the riyal has started to reap some fruits, mainly in the decline of the United States dollar from YR 257 per dollar in mid-August to YR 214 in the first week of September. The IMF has publicly indicated that the fund is pleased to see that the CBY is starting to adopt its recommendations on the fiscal and monetary policies in Yemen.

However, professor of economics at Sana'a University, Dr. Mohamed Jubran, is still questioning the soundness of the IMF reform program, indicating that the Yemeni economy is rather complex and the improvement in the value of the riyal should not be attributed to the IMF's program. He stated: "Financial data from the CBY or the Ministry of Finance does not support the IMF's claim," adding that the IMF's program is focusing on the fiscal sustainability and diversifying the sources of revenue for the government rather than improving the value of the riyal. Therefore, a decrease in the US dollar against the Yemeni riyal is unjustifiable, as none of the economic indicators support this reduction.

Further to this claim, a renowned businessman who requested to remain anonymous, indicated that this fluctuation of the interest rate is extremely alarming and a primary cause for concern, warning that such fluctuations will push the business community to avoid dealing with the Yemeni riyal, given the associated risks resulting from uncertainty around its future value. This has the potential to devastate the value of the riyal and corner the Central Bank into becoming helpless in managing the economy. He also added that the high level of fragility in the management of the currency is a reflection of the chaos in the design and implementation of macroeconomic policies. He also pointed out that if a simple IMF recommendation results in such fluctuations, how devastating the implementation of the entire reforms package to the business environment would be.

Dr. Jubran has also highlighted that the primary challenge for the Central Bank is to control the currency speculators who thrive from such fluctuations, who play a major role in the supply and demand for the US dollar in the domestic market. Perhaps the Central Bank has acknowledged this by penalizing 20 exchange companies earlier this week, which were found to manipulate the exchange rates, countering the Central Bank 's efforts to stabilize the value of the currency.

Economist Raidan Al-Saqqaf has indicated that the role of foreign cash remittances which peak during the month of Ramadan, coupled with the influx of Yemeni immigrants and workers abroad vacationing in Yemen during the holy month are primary factors that increased the supply of foreign currencies in the country, and the demand for Yemeni Riyals for domestic spending, thereby aiding the Central Bank 's efforts. He also added that the real test for the success of the Central Bank 's new approach to managing the exchange rate regime will be in the six to eight weeks following Ramadan, when imports increase to match the consumers' demand which increases during Eid Al-Adha in accordance to the collective consumer behavior of the Yemeni market.

By Ali Saeed

© Yemen Times 2010