Houthi banknote ban sparks crisis in Yemen

Yemeni riyal banknotes are seen at the Central Bank of Yemen in Sanaa. The liquidity crisis has prompted exchange companies to freeze government salaries. (Reuters)
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Updated 20 January 2020

Houthi banknote ban sparks crisis in Yemen

  • Locals are bracing for a spike in fuel prices, which occurs when riyal dives

AL-MUKALLA, Yemen: Prices of basic imported goods increased 10 percent in government-controlled areas of Yemen this weekend — a result of the Houthi ban on newly printed banknotes.

“Importers told us the increase is due to the fall of the Yemeni riyal against the dollar and the Saudi riyal,” Mohammed, a shop owner in Al-Mukalla told Arab News.

The Iran-backed Houthis issued a ban on the use of banknotes released by the Central Bank in Aden, saying the move is meant to stop inflation and the deterioration of the Yemeni riyal against hard currencies. The Houthis have vowed to confiscate new bills and punish traders who possess or use them.

When the Houthis issued the ban a month ago, the Yemeni riyal was trading at 600 against the dollar.

The riyal has since fallen in value to around 650, forcing local importers to increase the prices of goods, and demonstrating
how areas liberated from the Houthis are still vulnerable to their economic decisions.

Locals are also bracing for a spike in fuel prices, which usually occurs when the Yemeni riyal dives.

Since December, Houthi-controlled areas such as Sanaa and other heavily populated areas in northern Yemen have suffered from a severe credit crisis that has pushed locals to exchange new bills with scarce and damaged old ones, or converting them to the dollar or Saudi riyal.

The liquidity crisis has prompted local exchange companies to freeze government salaries, exacerbating suffering in a country that is experiencing the world’s worst humanitarian crisis, according to the UN. 

“My agency managed to get rid of new notes here and there. We now only accept Saudi riyals or old bills,” a young man who runs a travel agency in Sanaa told Arab News on condition of anonymity to protect his identity. 

“Traders who have a lot of new bills smuggle them inside goods to be delivered to government-controlled areas, where they’re exchanged for old banknotes.”

The dollar is traded at 580 Yemeni riyals in Houthi-controlled areas, lending weight to economists’ speculation that the decision could create two economies, derail business between liberated areas and those under Houthi control, and boost currency arbitrage on the black market. 

Another repercussion of the ban is the unprecedented level of smuggling of hard and local currency between north and south.

In Al-Mukalla, local exchange companies told Arab News on Sunday that big traders in Sanaa smuggle hard currencies into liberated areas, where they are sold at higher rates. 

“They buy the dollar at 580 in Sanaa and sell it here at 640,” said Abu Awadh, a worker at a local exchange company who used a nom de guerre because he is not authorized to speak to reporters. Demand for the dollar and the Saudi riyal has decreased for the first time in years, he added.

Despite an abundance of the dollar in the market, the Yemeni riyal continues to plunge. According to local traders, the reason is that currency dealers move dollars between liberated areas seeking higher rates. 

The internationally recognized government in Aden, which has condemned the ban, appears powerless against its repercussions.

The Economic Reforms Team, a group of economic experts, warned that the Houthi decision could cause humanitarian, economic, social and political consequences. It urged warring parties in Yemen not to use the economy as a weapon. 

Pompeo begins Greece talks to calm eastern Mediterranean tensions

Updated 28 min 8 sec ago

Pompeo begins Greece talks to calm eastern Mediterranean tensions

  • Pompeo began his two-day visit by meeting Greek counterpart Nikos Dendias in Thessaloniki

ATHENS: US Secretary of State Mike Pompeo began talks on Monday in Greece to de-escalate tension in the eastern Mediterranean and boost tentative steps at dialogue between Athens and Ankara.
Pompeo began his two-day visit by meeting Greek counterpart Nikos Dendias in Thessaloniki. Neither side has released a statement.
“Thrilled to be back in Greece, a vital US partner with whom we share a common strategic vision,” the secretary of state tweeted on Monday.
“The strength of our bilateral relationship is at an all-time high, and I’m looking forward to a productive visit.”
Ahead of the trip, a senior US official said Washington was keen to tamp down the tension, reduce the likelihood of “accidents or incidents” and for Greece and Turkey to complete an agreement.
The two NATO members are at loggerheads over energy exploration in disputed waters after Ankara stepped up hydrocarbon research in the sea.
The row has roped in other European powers, raising concern about a wider escalation.
But last week Athens and Ankara said they were ready to start talks.
“Let’s meet, let’s talk and let’s seek a mutually acceptable solution. Let’s give diplomacy a chance,” Mitsotakis said on Friday to Turkish President Recep Tayyip Erdogan, in an address to the virtual UN General Assembly.
Pompeo will fly to the Greek island of Crete on Tuesday and tour the NATO naval base of Souda Bay.
Mitsotakis – who is hosting Pompeo at his family home on Crete – wants closer military ties with the US.
The secretary of state signed defense agreement last October allowing US forces a broader use of Greek military facilities.
A key element of the October deal was the northern Greek port of Alexandroupolis, a Balkans and Black Sea gateway of strategic value to the US navy and NATO.
The US has been granted priority status to the port after paying roughly $2.3 million to remove a sunken dredging barge that had blocked part of the harbor since 2010.
At the time, Greek officials said the Pentagon was expected to invest over $14 million on the Greek air base of Larissa and around six million euros at Marathi, part of the Souda base.
The visit to Thessaloniki is also intended as a sign to the Balkans on American willingness to invest in the region, the State Department said.
Pompeo will sign a bilateral science and technology agreement, and host an energy sector gathering of business leaders.
Pompeo’s tour later in the week also includes stops in Italy, the Vatican and Croatia.
In Rome, the secretary of state will discuss efforts by the Trump administration to deter its European allies from using equipment by Chinese manufacturer Huawei in developing their 5G networks.
The US accuses Huawei of being a tool for Chinese espionage.
Pompeo is also scheduled to attend a meeting at the Vatican on religious freedom, his human rights priority. There, too, he will warn of China’s actions against minorities, including Muslims.