Yemen's Central Bank Cracks Down on Old Currency: A 60-Day Deadline to Counter Houthi Counterfeiting

To reform the banking and monetary sector, the Central Bank of Yemen, located in the city of Aden, the temporary capital of the country's southern region, has introduced a series of measures. These include the establishment of a unified banking network and the relocation of the main bank headquarters to Aden.

In its latest decision, announced on Thursday, May 30, 2024, the Central Bank of Yemen has called upon individuals, businesses, companies, financial institutions, and banking establishments holding paper money issued before 2016 in various denominations to promptly deposit these banknotes within a maximum period of 60 days from the date of the announcement.

The Central Bank, in a statement published on its official website and obtained by "Bran Press," emphasized that citizens, non-financial institutions, commercial stores, and other parties without accounts at the Central Bank must deposit the specified edition banknotes in commercial and Islamic banks located throughout the liberated governorates.

Furthermore, the Central Bank urged banks, financial institutions, and banking establishments that maintain accounts with the Central Bank to deposit the mentioned banknotes at the bank's headquarters in Aden or its branches situated across the liberated governorates.

The Central Bank's decision also called upon all financial and banking institutions, as well as citizens holding banknotes from the specified edition, to promptly and diligently respond to this announcement to safeguard their funds and serve the public interest. The statement stressed that failure to comply within the specified period would absolve the Central Bank of any responsibility for the consequences resulting from non-compliance.

Thwarting Houthi Counterfeiting Attempts

Fares Al-Najjar, an economic expert and analyst, views the Central Bank of Yemen's recent decision to replace the old currency as an important step, potentially laying the groundwork for discontinuing the use of outdated banknotes. In an interview with "Bran Press," Al-Najjar stated that this decision aims to impede the Houthi group, internationally classified as a terrorist organization, from engaging in currency counterfeiting activities. He highlighted the Houthi group's recent creation of a counterfeit 100-riyal coin lacking legal legitimacy.

Al-Najjar emphasized that the significance of this step lies in the fact that the Houthi group, designated as a terrorist entity, has pushed Yemen into a state of deadlock. Their obstruction of efforts to unify the country's monetary policy and achieve peace has compelled the Central Bank to assume a proactive role, particularly due to the significant deterioration of pre-2016 banknotes.

According to Al-Najjar, the Central Bank's measures to reform Yemen's banking sector, including the destruction of damaged banknotes and the issuance of new currency, have become necessary. These actions will also compel the Houthis to comply with the decisions, even in areas under their control. Parties refusing to adhere to the new regulations may find their currencies deemed illegal, as the Central Bank may take further steps in the future to discontinue the use of outdated banknotes and replace them with new denominations.

Al-Najjar regarded the deadline imposed by the Central Bank to deposit old banknotes as a standard procedure undertaken by central banks worldwide to regulate the banking sector and manage currency denominations. He emphasized that this is a crucial role played by central banks across the globe.

Economic battle

According to economic expert Fares Al-Najjar, the recent decision made by the Central Bank of Yemen is part of an economic battle against the Houthi group. Its purpose is to safeguard the remaining banking sector, cut off the Houthis' sources of funding, and confront the economic war instigated by the group. Al-Najjar argues that it is unreasonable for the Houthis to continue developing their parallel economy while the central bank remains passive.

He highlights that the timing of the decision carries a message to commercial banks, emphasizing the importance of adhering to the instructions of the Central Bank. He asserts that the bank's legitimacy is internationally recognized and supported, and its programs and decisions enjoy international backing. The Central Bank in Aden aims to reintegrate Yemen into the global community by engaging with the world. Allowing the Houthis to maintain control over the banking sector isolates the country and raises suspicions regarding illicit activities such as terrorism financing and money laundering.

Al-Najjar explains that all the measures taken by the Central Bank, including the establishment of a unified network, the transfer of commercial banks, and the recent obligation for entities and individuals to deposit outdated banknotes, are corrective actions aimed at revitalizing the banking sector and adopting monetary policies to rectify the distortions that occurred in the past.

Ending Monetary Fragmentation

Economic journalist Wafiq Saleh emphasizes that the decisions made by the Central Bank of Yemen in Aden are part of its efforts to assert monetary and financial control throughout the country, to end monetary fragmentation, and to counter the Houthi group's manipulation of the national currency and banking sector.

In an interview with "Bran Press," Saleh states that the internationally recognized terrorist designation of the Houthi group has enabled them to exploit monetary fragmentation as a tool against the banking sector and the Central Bank in Aden. He highlights the numerous duplicative decisions made by the group, which hinder the implementation of any steps or measures by the Central Bank to achieve stability in the banking sector.

Saleh further explains that the Central Bank in Aden has realized that its efforts to improve the monetary situation clash with the Houthi's monetary fragmentation and their duplication of banking decisions. Therefore, the bank has taken bold and potentially costly measures, such as relocating the main bank centers to Aden and discontinuing the use of outdated currency in Houthi-controlled areas.

Regarding the overall impact of these decisions on the economy, Saleh emphasizes that if the Central Bank in Aden successfully implements these measures and puts an end to the Houthi group's manipulation of the national currency, it would be a significant achievement for the legitimate government in their economic battle against the Houthis.

Aden-Sanaa Bank Crisis 

Mustafa Nasr, the head of the Economic Media Center, has commented on the recent decisions made by the Central Bank of Yemen, highlighting their connection to the ongoing crisis between the internationally recognized Central Bank in Aden and the de facto Bank of Sanaa controlled by the Houthi group. Nasr's remarks, shared on his Facebook page and conveyed to "Bran Press," shed light on the motivations behind the Central Bank's actions.

Nasr explains that the decisions are aimed at exerting pressure on banks to relocate their operations centers to Aden within the prescribed two-month deadline. However, he notes that thus far, the banks have not responded to the directives issued by Aden's centers, as they face explicit threats from the Sanaa Bank. The banks are hesitant to jeopardize their assets, capital, and the interests of their stakeholders within the country. Nasr emphasizes that the Houthi group has demonstrated a willingness to engage in reckless behavior within this context.

The success of the Central Bank's decisions, according to Nasr, largely depends on the support it receives from the presidency and the Kingdom of Saudi Arabia. This becomes especially crucial if the crisis escalates and leads to the suspension of the SWIFT code for non-compliant banks. Nasr suggests that de-escalation hinges on the Houthi group, classified as a terrorist organization, demonstrating restraint and allowing the transfer of financial centers to Aden. He emphasizes the importance of maintaining professional banking standards agreed upon independently of the conflict, lest the situation devolve into catastrophic economic isolation.

Regarding the escalating situation, Mustafa Nasr, head of the Economic Media Center, has stressed the urgent need for a comprehensive solution that unifies monetary policy, particularly concerning the national currency. He warns that failure to address this issue within a unifying framework could exacerbate monetary division and pose significant challenges for local banks. Nasr highlights an initiative launched by the Economic Media Center in collaboration with the Economic and Private Reforms team, aimed at resolving the monetary division between the Sanaa and Aden banks.

Nasr further clarifies that while these recent steps may not have a substantial impact on improving the national currency's value, as other factors play a role, they are crucial in mitigating the deepening crisis.

Thursday, the Central Bank of Yemen announced its decision to cease dealings with six Yemeni banks following the expiration of the 60-day deadline for the transfer of their main centers to Aden. The affected banks are Tadhamon Bank, Yemen-Kuwait Bank, Shamil Bank of Yemen and Bahrain, Al-Amal Microfinance Bank, Al-Kuraimi Islamic Microfinance Bank, and the International Bank of Yemen.

In early April, the Central Bank of Yemen, based in Aden, the temporary capital of southern Yemen, issued a directive obliging commercial banks, Islamic banks, and microfinance banks to relocate their headquarters from Sanaa to Aden within a maximum period of 60 days.

The Central Bank has assured the recognized Yemeni Center that it will take all necessary legal actions against banks that fail to comply with the decision, per the provisions of the Anti-Money Laundering and Terrorism Financing Law, along with its executive regulations.