Yemeni currency recovers 10% of value as central bank shuts down rogue exchanges

Money dealers reported that the riyal was trading at 950 to the dollar in government-controlled areas, compared with 1,050 earlier in the week.

The currency dropped through a historic low of 1,000 to the dollar on the black market a month ago, and continued to tumble in the weeks that followed amid a deadlock in peace efforts to end the war in the country.

The last time the riyal rebounded significantly was in December last year, shortly after a new government was formed under the Riyadh Agreement. At that time, it surged to 730 to the dollar, compared with 900 in the previous weeks, as cabinet ministers prepared to return to Aden.

To tighten its grip on the chaotic currency-exchange market, the Central Bank of Yemen on Tuesday closed five currency-exchange businesses that had violated its regulations. It has now shut down a total of 13 firms in the past week.

The bank threatened to close other local exchanges and private banks that deal with the banned companies, and vowed to take the same punitive measures against any monetary body that violates its rules. It warned local businesses against becoming involved in speculative exchange-rate activities, which have been largely blamed for the fall of the riyal.

To address a chronic shortage of cash caused by a Houthi ban on banknotes printed by the Yemeni government, the central bank this month injected billions of riyals into the market in the form of older, larger-sized 1,000-riyal banknotes, and began withdrawing the newer, smaller bills. The Houthi ban has forced people in areas controlled by the militant group to buy the older banknotes from the black market at a higher rate.

At the same time, the central bank ordered commercial and Islamic banks based in Houthi-held Sanaa to relocate their financial operations and headquarters to government-controlled Aden and to update the bank about their financial statements. Failure to do so could result in punitive measures, including a ban on operating in the country and a block on deposits to their accounts with international banks abroad.

Citing previous similar crackdowns on violators of central bank rules, economists and locals fear that the recovery of the currency might prove to be short-lived, as the Yemeni government has not yet been able to return to the country.

Local and international aid organizations said that the depreciation of the currency has exacerbated an already dire humanitarian crisis by increasing the prices of food and fuel, forcing many Yemenis to skip meals.

Last month the International Rescue Committee expressed concern about the effects of the devaluation of the riyal on humanitarian needs in Yemen, warning that many people cannot afford to buy food.

“The impact of currency devaluation on Yemeni households is extremely worrying,” the aid organization said. “The (riyal) has lost nearly a third of its value against the (dollar) in the past year. “Even people with stable jobs are struggling to afford food, as their income can purchase only a fraction of what it could in previous months.”