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In addition to the seven-year military conflict, the Yemeni government and the Houthi rebels are fighting on another front-a currency war has opened the rial value gap.

The government and Iran-backed Houthis have been using the same banknotes until the end of 2019. Due to concerns about inflation, the rebels banned the printing of new banknotes in the government-run Aden.

The resulting difference in money supply caused the exchange rate of the rial against the US dollar in the government area to plummet to around US$1,000, while the value of the Houthi armed control zone was relatively stable at US$600.

Citizens and businesses in the government and rebel-controlled areas pay for their own money because of differences, but especially the former because of rampant inflation there.

This internal exchange rate also complicates trade and leads to manipulation by profiteers, damaging the interests of most people in countries on the verge of famine.

Amal Nasser, an economist at the Sana’a Center for Strategic Research, said: “Now, we have… the exchange rate of the same currency in our country.” “From an economic point of view, this is very strange.”

According to Nasser, other experts and Yemeni citizens, the gap between the values ​​of the two currencies means that the cost of transfers between the two regions is higher.

Inflation stimulus

The conflict in Yemen split the country into the north and south controlled mainly by the Houthi. Under the leadership of an internationally recognized government, the government moved the central bank to Aden after the armed groups occupied Sana’a in 2014.

The war has pushed this country, which has long been the poorest country in the Arabian Peninsula, to the brink of famine and economic collapse. Most schools, factories, hospitals and businesses were either destroyed or closed.

As the rial plummeted to new lows in the government sector in recent weeks, the central bank there promised to withdraw a series of banknotes accumulated on its territory following the Houthi ban at the end of 2019.

The Central Bank of Aden was captured because it had expected that the new bills would eventually be evenly distributed in the two regions, but the concentration of supply in the government region triggered inflation there and stimulated exchange rate differences.

The government this month launched a batch of what it claimed to be “old banknotes”, which aroused the anger of the insurgents, who accused it of minting new “counterfeit money.”

The rebel authorities also banned its use and issued guidelines to civilians to identify “fake goods”—experts say it is difficult for ordinary citizens to do this.

“Obviously, this new capital injection will have a negative impact on the economy, increase inflation and affect the purchasing power of citizens,” said Aden resident Allahaj.

In a country where more than 80% of people rely on international aid, Yemenis are already struggling with the soaring cost of living.

Houthis accused of trickery

The Houthis accused the Russian state-owned company Goznak of colluding with the Central Bank of Aden this year to print “a large number of counterfeit currency”-“especially 1,000 rial banknotes” in order to treat the new banknotes as old banknotes.

Central bank adviser Wahid al-Fawdai (Wahid al-Fawdai) said that the government’s recently put into circulation bills have been stored in the central bank’s reserves for many years. Goznak and the central bank did not comment.

Social media and newspapers are full of stories of profiteers taking advantage of the unstable economic situation.

Some people use interest rate differences as an opportunity to cash out, including using newly issued “old” banknotes in Aden to purchase banknotes printed after 2017 at a discount of about 20%.

Analysts said that the new “old” banknotes are likely to penetrate the Houthi region largely undiscovered, because they are difficult to distinguish from older banknotes.

They said that ultimately, this should help the central bank to narrow the exchange rate gap between the two regions.

During a months-long offensive by the Houthi rebels, a Yemeni fighter poses outside the oil-rich city of Malibu [Nariman el-Mofty/AP]



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