CENTRAL BANK OF YEMEN
PROFILE AND FUNCTIONS
Introduction The Central Bank of Yemen was established in 1971. When the northern and southern sectors of Yemen reunited on 22 May 1990, the Central Bank of Yemen merged with the Bank of Yemen under the original name of “Central Bank of Yemen”. The Central Bank of Yemen is an independent body created by Law to carry out all the functions of a normal central bank with the paramount objective of conducting monetary policy to keep inflation under control, stabilize the exchange rate of the national currency and promote investment and economic growth. The management of the Bank is entrusted to a Board of Directors with the Governor as Chairman. The headquarters of the Central Bank of Yemen is in Sanaa. However it has a branch in each of the twenty Governorates of the country.
1. Monetary Policy
The Central Bank of Yemen uses all the tools of monetary policy at its disposal in order to keep inflation under control, stabilize the exchange rate of the national currency and create an environment that is conducive to investment and high growth. The main monetary tools the Bank uses are the following:
- The interest rate
- The discount rate
- Bank reserve requirements
- Open market operations
- Intervention in the foreign exchange markets
- Repo operations
- Issue of certificates of deposits
2. Currency Issue
The Central Bank of Yemen is the body which issues the banknotes and coins of the country. The national currency of Yemen is the Rial. The exchange rate of the Yemeni Rial has been floating freely since 1 July 1996 and there has been only one single exchange rate since then. During 2004 the Rial has only weakened a little against the US dollar (less than 1%).
3. Management of the Official Reserves
The Bank is the custodian of the official foreign reserves of the country, which it invests and manages in the best interests of the national economy. As a result of an increase in oil production and the rise of international oil prices as well as the ongoing economic and financial reforms, which began in early 2005, the official reserves has risen from 2.8 months of import cover in 1994 to 15 months in 2004. The commercial banks are free to deal in the foreign exchange market and are allowed to keep balances in foreign currencies for their account at home and abroad. There are no restrictions on the transfer of foreign currencies abroad, as the Republic of Yemen has accepted Article VIII of the International Monetary Fund in December 1996.
4. Bankers’ Bank
The Central Bank of Yemen maintains accounts for the commercial banks and acts as a clearing house for their transactions. The commercial banks keep statutory reserves with the Central Bank as a ratio of their deposits. This ratio varies from time to time in accordance with the condition and state of the economy. It is one of the monetary tools at the disposal of the Central Bank.
5. Banker to the Government
Beside maintaining accounts for the various Government ministries and agencies, the Bank also keeps accounts in the name of international institutions from which it makes payment orders to the concerned parties as instructed. Furthermore, the Bank manages the issue and redemption of treasury bills.
6. Bank Supervision
The Central Bank of Yemen supervises the banking system with a view to promoting its soundness and protecting the interests of depositors and shareholders. There are seventeen commercial banks in the country, four of which are Islamic.
There is no exchange control in the country, which we have been dismantling since early 1995. People are free to bring foreign currencies in any amount into the country and take them out abroad without any restrictions. The same applies to transfers of any kind. As mentioned earlier, the Republic of Yemen has accepted Art. VIII of the International Monetary Fund in December 1996.
8. Other Functions
The Bank acts as lender of last resort.
The Bank administers and manages the external public debt of the country.
It acts as advisor to the Government in respect of the formulation and implementation of economic and financial policies.
The Bank publishes financial and economic data and reports on a regular basis reflecting the health of the domestic economy.
OSB 12 June 2005