Yemen Arab Republic

Yemen, Arab Republic of, (North Yemen) fixed its currency to the USD for some years under a newly established central bank, but when its external position and its budgetary position deteriorated in the early 1980s it was obliged to adjust its exchange rate repeatedly, in a context of direct monetary instruments and undeveloped financial markets.

Years Targets and attainment Classification
1974-83 currency fixed to USD at rate unchanged from February 1973; central bank set up 1971 in place of currency board, with reserve requirements, cash and liquidity ratios and limits on bank interest rates as instruments; initially one older locally-owned, government-controlled and dominant commercial bank, plus four foreign-owned commercial banks, specialised state credit institutions and informal sector money dealers, with more commercial banks entering later; exchange and trade policies relatively liberal; strongly agricultural economy, which relies on large remittances and aid from abroad; infrequent budget deficits; money growth driven largely by external factors (aid and remittances producing balance of payments surpluses); 1977 ceilings on banks’ advances/deposit ratios; from 1980 aid and remittances fall so external contribution to monetary growth ceases to be positive; interest rate structure adjusted less infrequently, spending on development projects grows and government becomes net borrower from domestic banking system, excess liquidity in banking system rises, monetary growth initially kept low but accelerates from 1982 augmented exchange rate fix AERF
1984-89 February 1984 to February 1985, with informal forex rate diverging from official, official parity vs USD adjusted in small steps for cumulative devaluation of 30%, new forex purchase committee takes more control, most transactions transferred to informal/commercial market, but divergence remains; further devaluations January and December 1986; end-1986 central bank suspends (temporarily) operations of money changers and becomes sole buyer and seller of forex, import restrictions tightened; early 1988 further official depreciation allows unification of official and commercial markets, with rate adjusted periodically on basis of central bank transactions in secondary market in Jeddah; attempts to re-establish fiscal and monetary control mid-1980s, with monetary policy using reserve requirements, some interest rate adjustments and 1987 direct credit ceilings; oil discovered 1984, exported from 1987; late 1989 acceptance of draft unity constitution, May 1990 Yemen Arab Republic and People’s Democratic Republic of Yemen unified in Republic of Yemen (q.v.) loosely structured discretion LSD

Selected IMF references: RED 1975 pp22-4, 38; RED 1976 pp20-5, 34; SR December 1975 pp1-4; RED 1977 pp28-9; RED 1979 pp29-30, 41; SR 1980 pp5-7; RED 1981 p28; RED 1982 pp30-3 SR 1982 pp2-3, 7-8; RED 1983 pp24-7; RED 1985 pp45-8; SR 1985 pp13-15; RED 1987 pp52-4; SR 1987 pp1-5; RED 1988 pp1-3, 19-23, 26-7, 67-71; SR 1988 pp1-3, 8-9; RED 1989 pp1-3, 25-9, 32-3, 77-81.