Strategies for Rebuilding the Financial System in Yemen: Enhancing the Role of the Central Bank to Combat Inflation and Restore Economic Stability Amidst Conflict

Abstract

Financial systems in conflict areas like Yemen face critical challenges related to the deterioration of the national currency, scarcity of foreign currency resources, and the overall collapse of economic structures. The Yemeni conflict has eroded the ability of financial institutions to perform their functions effectively, negatively impacting the performance of the central bank and the financial sector in general, as well as the living conditions of citizens. The continuous decline in the value of the Yemeni riyal has led to rising inflation and a decrease in citizens' purchasing power, consequently increasing poverty rates. The conflict has also significantly affected the flow of foreign investments and the outflow of national capital, resulting in a decline in cash reserves.

     This paper aims to propose realistic and effective strategies for rebuilding the Yemeni financial system and enhancing the role of the central bank in controlling inflation and maintaining currency stability. It also focuses on how to restore the confidence of the local and international community in the Yemeni financial system. To achieve this, interventions are needed at various levels, including institutional reforms, enhancing liquidity and reserve management, activating Islamic financial instruments, strengthening international and regional cooperation, utilizing financial technology (FinTech), building trust and managing relationships, repatriating emigrated national funds, establishing a financial and secondary market, and reducing the import bill.

     The current paper concludes with a series of practical short- and long-term recommendations