The escalation of the currency war between Sana’a and Aden threatens to trigger a military conflict.

NYN | Reports and Analysis:

The escalating currency war between Sana’a and Aden threatens to explode into military conflict, undermining all regional and international efforts made over the past years to establish peace in Yemen. After the Central Bank in Aden increased pressure on commercial and Islamic banks operating in Sana’a-controlled areas by announcing a halt to the use of old currency notes in those areas, the Sana’a Bank promised citizens and companies in southern provinces a rate of 3.5 new riyals for every old riyal for the currency printed by the government aligned with the Saudi-Emirati coalition, without cash backing.

In a statement, it said it would use the currency printed by the Aden Bank, which caused significant inflation in the markets and was withdrawn at the beginning of 2020.

This decision led individuals and companies in areas controlled by the Aden-aligned government to refuse the call to deposit old currency in banks in exchange for compensation at a one-to-one rate, which bankers viewed as unfair to southern citizens holding old currency.

The “currency war” also led Sana’a to hint at the use of force to defend the rights of citizens in its control. Sources in the capital told “Al-Akhbar” that no harm to the living and humanitarian situation of around 24 million people will be allowed, emphasizing that Aden Bank’s decision to stop dealings with local banks in “Ansar Allah” areas aims to cause price inflation in those regions and create a payments crisis. This is particularly significant as commercial and Islamic banks are responsible for opening letters of credit for traders and ensuring Yemen’s imports of food, medicine, and fuel.

Yemen relies on external markets for 90% of its needs; thus, such a step would double the humanitarian suffering across the country. Additionally, Aden Bank is trying to impose conditions on Sana’a banks, linking approval of their external operations, especially imports, to it through the so-called “unified system.” This attempt will have negative consequences on the flow of trade between Yemen and the outside world, leading to a severe shortage of goods in the local market, according to economic experts.

The recent economic escalation has raised UN concerns about the collapse of the ceasefire agreement.

The internationally recognized Central Bank of Aden threatened last Friday to impose new sanctions on the movements of Yemeni commercial and Islamic banks and to suspend their “SWIFT” operations. It requested regional and international banks to halt any financial operations with them, specifically addressing Saudi banks closely connected with Yemeni banks, until they comply with its decisions and move their headquarters from Sana’a to Aden. Consequently, reports indicated that Saudi’s Al Rajhi Bank had ceased dealings with the banks suspended in Sana’a, following Aden’s central bank request.

In contrast, Ibrahim Shuraim, a professor of economics at the University of Sana’a, downplayed the significance of stopping “MoneyGram” and “Western Union” services, stating that remittances from expatriates and investor imports would not be affected, noting that “transfers via these networks are minimal and there are multiple alternatives available.”

Financial sources confirmed to “Al-Akhbar” that remittances to expatriates continue without any restrictions and ruled out any risks to the flow of such remittances, on which over 40% of Yemeni households have depended since salaries were cut off in 2016. These remittances amount to $4.3 billion annually and are the main source of foreign currency in Yemen, covering 60% of import costs from abroad.

However, a source at the Social Affairs Office in Sana’a warned “Al-Akhbar” that “targeting banks by coalition-aligned parties threatens to halt all humanitarian aid, especially the cash assistance provided by international and humanitarian organizations to the poorest segments in Sana’a-controlled areas,” warning of “the catastrophic consequences for the remaining livelihoods.” The recent economic escalation has raised UN concerns about the collapse of the ceasefire agreement in Yemen. In this context, diplomatic sources told “Al-Akhbar” that there is an Omani move to calm the economic war between Sana’a and Aden, expecting a truce in the coming days.

**Source: Al-Akhbar Lebanese Newspaper**