Cash shortages grip Yemen despite currency stabilization | Business and Economy News

Mukalla, Yemen – The Yemeni government’s measures to curb the devaluation of the Yemeni riyal finally paid off, but it created another problem: a severe liquidity crisis.

The government’s central bank, based in the southern city of Aden, shut down unauthorized exchange firms it said engaged in currency speculation, centralized internal remittances under a controlled system and formed a committee to oversee imports and supply traders with hard currency.

These measures have helped curb the riyal’s free fall, from around 2,900 to the US dollar months ago to around 1,500 today, a move that was initially welcomed. But the gains were short-lived as public frustration grew over a worsening shortage of cash in riyals.

People across government-held cities such as Aden, Taiz, Mukalla and others said they were facing an unprecedented shortage of Yemeni riyals in the market. Many, especially those holding US dollars or Saudi riyals, said local banks and exchange firms were refusing to convert foreign currency, or limiting daily exchange to as little as 50 Saudi riyals per person, citing a shortage of local cash.

This has left many Yemenis unable to access cash or use their savings in hard currencies at a time of increasing economic pressure, paralyzing businesses and giving rise to a black market where traders exchange foreign currency at more unfavorable rates for the customer.

Businesses grind to a halt

Mohammed Omer, who runs a small grocery store in Mukalla, said he spent hours going through the city’s exchange firms trying to convert several hundred Saudi Riyal he received from customers. “I went from one exchange to another, and they refuse to exchange more than 50 riyals,” said Omer, a man in his early 50s with a salt-and-pepper goatee. “It’s a waste of time and effort – I had to close my shop.”

Yemen has endured an economic collapse for more than a decade, stemming from a war between the Saudi-backed government and the Iran-aligned Houthis that has killed thousands and displaced millions.

In addition to the fighting on the battlefield, the warring parties have targeted each other’s main sources of income, leaving both the Houthis and the government strapped for cash, struggling to pay public sector salaries and fund basic services in areas under their control.

At a board meeting in March, the Central Bank in Aden said it was aware of the cash shortage and approved several unspecified “short- and long-term” measures to address the problem, noting that it was pursuing “conservative precautionary policies” to stabilize the riyal and inflationary pressures.

Government officials have also complained that the Yemeni government pays salaries in low-denomination banknotes – mainly 100 riyals – forcing them to carry their wages in pockets.

Munif Ali, a government employee in Lahj, took to Facebook to vent his frustration, posting a video of himself sitting next to large, tightly packed wads of 100- and 200-riyal notes that he said he had received from the central bank. Munif, like many Yemenis on social media, said merchants are refusing to accept large quantities of low-value notes. “Merchants refuse to recognize it,” Munif said, referring to the stacks of 100- and 200-riyal notes in front of him. “Legal action must be taken against them.”

People who kept their savings in Saudi Riyal, the de facto currency in parts of Yemen, as well as Yemeni expatriates who send hard currency remittances to their families, and soldiers paid in Saudi Riyal are among those most affected by the cash shortage.

To find solutions

To cope with cash shortages and the refusal of exchange firms to convert hard currency, Yemenis have adopted a series of solutions. Some rely on trusted shopkeepers who allow delayed payments, while others exchange foreign currency at local grocers or supermarkets, often at lower, unfavorable rates. Banks and exchange firms have also introduced online money transfers, helping to ease the crisis for some.

In rural areas, where internet access is limited and barter shops are rare, the problem is even more acute.

Saleh Omer, a resident of the Dawan district in Hadramout, told Al Jazeera that he received a remittance of 1,300 Saudi riyals sent from Saudi Arabia. But the exchange firm that handed him the money refused to convert it into Yemeni riyals, citing a lack of cash, and advised him to try nearby shops.

With the official exchange rate at around 410 riyals to the Saudi riyal, a shopkeeper agreed – after repeated appeals – to exchange only 500 riyals, and at a lower rate of 400. “I almost begged the shopkeeper to exchange 500 riyals,” Saleh said. To convert the remaining 800 riyals, he added, he would have to return another day and go from one shop to another. “We are suffering a lot just to convert Saudi Riyals into Yemeni Riyals.”

Connections matter

Well-connected individuals are often better positioned than others to navigate the cash shortage, with some relying on personal contacts at banks and exchange firms to access cash. Khaled Omer, who runs a travel agency in Mukalla, said most of his business transactions are done in Saudi Riyal or US dollars. But when he needs Yemeni riyals to pay employees or cover utilities, he turns to a trusted contact at a local exchange firm. “We work with a money changer when we need riyals to pay salaries or cover basic expenses,” Khaled told Al Jazeera. “Exchange companies say they face a liquidity crisis.”

On social media, Yemenis say some patients have been denied medication because health facilities refuse to accept payment in Saudi Riyals, while exchange firms refuse to convert the currency into Yemeni Riyals.

In Taiz, Hesham al-Samaan told a local hospital that he refused to accept Saudi Riyals from a relative of a patient, forcing him to wander the city looking for someone to exchange the money to pay for treatment. “Is there any justice for the people, oh government? Will someone hold accountable those who refuse to exchange currency and exploit people’s needs?” al-Samaan wrote in a Facebook post that drew dozens of comments from others reporting similar experiences, including being denied medical services for not having local currency.

For traders importing goods from Saudi Arabia, the cash crunch has become something of a blessing in disguise, as Saudi riyals are increasingly available at discounted rates. A clothing merchant in Mukalla told Al Jazeera that he accepts payments in both Yemeni riyals and Saudi riyals, partly to attract customers and partly to secure the foreign currency he needs for his business. “As a businessman who sells goods in Yemeni Riyals, I take advantage of the cash shortage,” he said on condition of anonymity. “Rubber companies that need local currency that I own sell me Saudi Riyal at lower rates.”