Currency crisis brings new hardship to war-weary Yemen

DUBAI — 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-aligned Houthi rebels, 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 19 when residents and money changers stopped dealing with them under the threat of a 10-year jail term, according to sources close to the rebels.

The Houthis 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 per cent in the south in the past five weeks, and about 7 per cent 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 rebel 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.

A senior UN official warned earlier this month that certain factors that threatened to trigger famine last year in Yemen — including a plunge in the value of the national currency — were once again looming large.

"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 coordinates humanitarian aid in the country, told the UN Security Council.

"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.

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 central bank's historic home in Sanaa is still operating under the Houthis, who have stewardship over the country's major consumer markets.

The Sana'a 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 United States 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 Sana'a 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 banknotes 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 Abed Rabbo Mansour Hadi said the rebels' measure was "oppressive and will devastate the economy", accusing the Houthis of "blackmailing the people".

"The prime minister met with ambassadors of the European Union and we called on them to apply pressure," on the Houthis to scrap the ban, Yemen's Planning and International Cooperation Minister Najeeb Al Ouj told AFP.

A majority of Yemen's population of 29 million are living in dire circumstances after five years of war, with at least 11 million struggling to find enough food, according to the UN World Food Programme.