The Central Bank of Yemen and a source in the International Monetary Fund said that the bank has started weekly auctions to sell foreign exchange, from its diminishing reserves, to banks in an attempt to support the currency and tackle inflation. It is also seeking to benefit from the reserves provided by the International Monetary Fund last August; According to the agency “Reuters”.
The fund has allocated $655 million in special drawing rights to Yemen, which would increase hard currency reserves by 70 percent and contribute to alleviating a severe economic and humanitarian crisis in the war-torn country.
In order to be able to spend the SDR, countries must exchange them for a hard currency, and this requires finding a country willing to participate in the exchange.
The war divided the central bank into two competing branches, one run by the Houthis, who are allied with Iran, in the north of the country and the other affiliated with the internationally recognized government in Aden and backed by Saudi Arabia.
An official at the central bank under the control of the internationally recognized government, who asked not to be named, said the government was still looking for a partner and Britain was a candidate.
The British Treasury and the Bank of England declined to comment.
Britain is one of the Western countries that have provided support to the Saudi-led coalition.
The Aden-based central bank used most of the $2 billion Saudi deposit, which the kingdom made in 2018 after an earlier exchange rate crisis, to help finance imports of basic goods.
“The remaining Saudi deposit is not more than $100 million…but it can only be used after obtaining prior permission from the Saudi government to spend it,” the central bank official said.
The Saudi embassy in Yemen did not respond to a request for comment about its current support for the central bank in Aden.
Riyadh leads a military coalition that intervened in Yemen in March 2015 against the Houthis, after they ousted the Saudi-backed government from Sanaa.
The war has caused the world’s worst humanitarian crisis. Due to inflation, hard currency shortages, and coalition restrictions on imports into Houthi-controlled areas, the costs of food, water, and fuel are out of reach for many in Yemen, which imports most of its needs.
The official said the International Monetary Fund, on condition of anonymity, that Yemeni hard currency reserves are currently very low, as they do not cover imports in one month, and that the market needs more hard currency in order to stabilize the economy.
As a short-term measure, and on the advice of the International Monetary Fund, the central bank last week began launching weekly auctions to sell its remaining foreign cash reserves, saying it wanted to increase liquidity at banks to ease exchange rate pressures.
So far, he has sold two tranches, each worth $15 million, at prices lower than the official and unofficial prices, but close to them. Exchange rates continue to record record lows.
In Aden, the dollar is traded for 1495-1510 riyals. The price in Houthi-controlled areas ranges between 602 and 606 riyals.
The Saudi-backed government, which is facing difficulty in paying public sector wages, resorted to printing money to cover the deficit, but the Houthi authorities prevented the circulation of new money in its regions, which reinforced the discrepancy in currency values.
Demonstrations erupted earlier this year over the currency’s tumble and high inflation in the south.