Right of Response by the Central Bank of Yemen: “The Yemeni Rial is doing fine!” [Archives:1999/20/Local News]

May 17 1999

In the editorial of May 3rd, Issue 18, Volume IX, the Yemen Times pointed out that monetary policy was going from bad to worse. We totally disagree, because the opposite is true, i.e., monetary policy has moved from good to better.
The Yemeni rial has not deteriorated against the US dollar, as you claim. It is actually the US dollar which has risen against all currencies, including the Yemeni rial. During the first four months of this year, the Yemeni rial has appreciated against the Euro, the Deutsche mark, the French Franc, the Swiss franc, the Brazilian rial and the Russian Ruble, etc. You therefore cannot say that the Yemeni rial is a weak currency.

Since 1996, Yemen has been pursuing a floating exchange system, which has served the country quite well. The exchange rate of the Yemeni rial is determined by market forces on a day-to-day basis. As a consequence, we have avoided the pitfalls of a pegged currency.
During the first 4 months, inflation as measured by the consumer price index has been negative, i.e., prices are falling. Real interest rates in the country are very positive, strengthening public confidence in the national currency. As evidence, the public now holds more treasury bills than the banks.

Raising interest rates last March and requiring banks to keep more of their foreign currency deposits with the Central Bank without remuneration is a well calculated monetary policy which has paid dividends as judged by the International Monetary Fund. You see, a few years ago there was no monetary policy in Yemen. Now we have one and it is flexible and effective. The principal objective of the Central Bank is price stability and it uses its monetary tools to promote this objective.

You mentioned that low dollar interest rates in Yemen are driving people to transfer their foreign currency deposits abroad. There is no evidence that this is happening, as foreign currency deposits with local banks have been rising in March as well as in April.
Similar to all oil exporting countries in the world, Yemen has suffered from a sharp fall in world crude oil prices in 1998. Fiscal and monetary measures were taken to contain the damage by the Ministry of Finance, the Central Bank of Yemen and other concerned authorities. Thank God, oil prices have recently started to rise and we believe that with the will of God, 1999 will be a better year than 1998.
The Central Bank of Yemen