Yemen’s fractured monetary system is on the brink of further division. The Houthi group has introduced new unilateral monetary measures, issuing new coins and banknotes in an attempt to consolidate financial control, undermine their rivals, and sustain the war economy.
On July 13, the Houthi-affiliated Central Bank of Yemen in Sana’a (CBY-Sana’a) issued a new 50-rial coin. Two days later, the central bank announced the introduction of a new 200-rial banknote. It claimed the new currency is intended to replace damaged and worn-out 50, 100, 200, and 250-rial banknotes and will not impact exchange rates or the national economy. The government-controlled Central Bank of Yemen in Aden (CBY-Aden) swiftly denounced the new coin as a “counterfeit, destructive, and a continuation of the economic war,” and warned financial institutions, businesses, and exchange companies against using the new coins and banknotes to avoid potential sanctions for using currency issued by a designated Foreign Terrorist Organization (FTO). At a meeting in Aden, several European ambassadors voiced support for the CBY-Aden as the sole authority for the issuance of new currency, describing Houthi minting as “illegal counterfeiting.”
With the existing Houthi ban on the CBY-Aden’s newer bills printed after 2016, the new 50-rial coin is not expected to significantly inflate the monetary base. It is intended to replace an equivalent denomination, and the new run of coins represents only an estimated YR5 billion (less than 1 percent) of old rials in Houthi-controlled areas. The larger 200-rial banknote, however, is intended to replace an estimated YR35 billion of worn-out 200 and 250-rial banknotes – over 2 percent of old rials. Their release also carries a hidden threat: it likely represents a first step before the printing of higher denominations. The Houthis may plan to print YR500 and 1,000 denomination bills as well, and any uncalculated expansion of the monetary base would further erode confidence in the rial and destroy the monetary system.
The smaller coins of 50 and 100 rials primarily circulate outside the banking sector due to their demand in everyday commercial transactions and small exchanges. However, the introduction of larger bills (200 rials and above) would mean forcing Yemeni banks in Houthi-held areas to replace their existing banknotes with the newly printed ones. This would make them vulnerable to US sanctions against the Houthis. If they refuse to accept and circulate the notes, they could face severe punitive measures from the group. Even as banks’ main operations relocate to government-controlled regions, their respective branches in Sana’a and other areas in Houthi-held northern would remain subject to Houthi influence. The Houthis could move quickly to print more money. In late 2017, the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury sanctioned an Iranian network linked to the IRGC for involvement in purchasing equipment and materials for printing Yemeni banknotes, potentially worth hundreds of millions of dollars. Creating a larger monetary base could allow the Houthis to exchange foreign currencies in an effort to maximize resources available to fund their military efforts.
This escalation marks the latest chapter in a long-running battle by the Houthis to undermine the CBY-Aden’s monetary sovereignty. In March 2024, the Houthis began minting their own 100-rial coins and, in response, the CBY-Aden demanded banks relocate. The power struggle then extended to control over the country’s banking and money transfer systems before Saudi intervention and a UN-brokered deal reversed escalatory measures by both sides.
The Houthis’ shift to direct competition over control of currency is a response to the evolving dynamics within Yemen’s banking sector, particularly international pressure and sanctions. Control over the country’s financial system has significantly shifted following the US redesignation of the Houthis as an FTO in January, and the Houthis are trying to maintain their grip on Yemen’s banking sector and pressure their government rivals in Aden into concessions.
This FTO designation compelled banks operating under Houthi influence to take concrete steps toward relocating their main operations to government-controlled areas to avoid US sanctions. The relocation terms mandate a third-party scrutiny of all bank operations to ensure compliance with anti-money laundering, counter-terrorism financing standards, and the requirements of the US designation. This oversight means the Houthis’ capacity to use the formal banking system to facilitate illicit financial transactions with the global financial system will be severely restricted. The CBY-Aden had previously attempted to obtain such oversight but was forced to back down by Saudi Arabia, undermining the bank’s efforts to financially isolate the Houthis. This surrendered a crucial economic advantage the Yemeni government could have leveraged, and cemented the Houthis’ influence over the banking sector. Now, the US sanctions represent a critical lifeline for the CBY-Aden to reassert authority.
The government and its central bank have limited options to counter the recent Houthi measures. In its latest statement, the CBY-Aden showed its heavy reliance on the international community, leveraging the threat of international sanctions to warn financial institutions against the use of the new Houthi currency. But it did not put forward retaliatory measures of its own. This suggests continued Saudi pressure on the Yemeni government not to renew economic escalation. The kingdom has overseen a series of concessions to appease the Houthis and preserve the roadmap negotiated in its bilateral talks aimed at securing Riyadh’s exit from the conflict. But Saudi Arabia has left the government grappling with political and financial crises. The Yemeni rial has plummeted to a record low, and now trades at over YR2,800 to the dollar, having lost over a third of its value since the year began.
The international community should exert whatever pressure it can to push the Houthis to back down and stop issuing new currency. It should also support the CBY-Aden in its efforts to preserve monetary and financial stability and navigate international sanctions. The Houthis should be engaged in a joint coordinated mechanism under UN sponsorship to address their liquidity shortage. Their adoption of further unilateral measures threatens to further shatter Yemen’s monetary system and destabilize the nation’s crumbling economy, with catastrophic ramifications for the Yemeni people.
This analysis is part of a series of publications produced by the Sana’a Center and funded by the government of the Kingdom of the Netherlands. The series explores issues within economic, political, and environmental themes, aiming to inform discussion and policymaking related to Yemen that foster sustainable peace. Any views expressed within should not be construed as representing the Sana’a Center or the Dutch government.