Yemen’s fractured monetary system is on the brink of further division following the Houthi rebels' move to introduce new unilateral monetary measures, issuing new coins and banknotes in an attempt to consolidate financial control, undermine their rivals (the internationally recognized government IRG), and sustain the war economy, according to an analysis published by the Sana’a Center.
The analysis noted that the IRG-controlled Central Bank of Yemen in Aden (CBY-Aden) swiftly denounced the new coin as a “counterfeit, destructive, and a continuation of the economic war,” and warned financial institutions, businesses, and exchange companies against using the new coins and banknotes to avoid potential sanctions for using currency issued by a designated Foreign Terrorist Organization (FTO).
"The release of the 200-rial banknote, intended to replace an estimated YR35 billion of worn-out 200 and 250-rial banknotes carries a hidden threat, according to the analysis.
“It likely represents a first step before the printing of higher denominations. The Houthis may plan to print YR500 and 1,000 denomination bills as well, and any uncalculated expansion of the monetary base would further erode confidence in the rial and destroy the monetary system.
Sana’a Center’s analysis found that the introduction of larger bills (200 rials and above) would mean forcing Yemeni banks in Houthi-held areas to replace their existing banknotes with the newly printed ones. This would make them vulnerable to US sanctions against the Houthis. If they refuse to accept and circulate the notes, they could face severe punitive measures from the group.
Even as banks’ main operations relocate to government-controlled regions, their respective branches in Sana’a and other areas in Houthi-held northern would remain subject to Houthi influence.
In late 2017, the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury sanctioned an Iranian network linked to the IRGC for involvement in purchasing equipment and materials for printing Yemeni banknotes, potentially worth hundreds of millions of dollars. Creating a larger monetary base could allow the Houthis to exchange foreign currencies in an effort to maximize resources available to fund their military efforts.
The analysis concluded that “This escalation marks the latest chapter in a long-running battle by the Houthis to undermine the CBY-Aden’s monetary sovereignty”, recommending that “the international community should exert whatever pressure it can to push the Houthis to back down and stop issuing new currency. It should also support the CBY-Aden in its efforts to preserve monetary and financial stability and navigate international sanctions. The Houthis should be engaged in a joint coordinated mechanism under UN sponsorship to address their liquidity shortage. Their adoption of further unilateral measures threatens to further shatter Yemen’s monetary system and destabilize the nation’s crumbling economy, with catastrophic ramifications for the Yemeni people”.