The Cash Liquidity Crisis in Yemen: How monetary fragmentation, sovereign resource depletion, and institutional collapse have strangled Yemen’s financial system — and what can be done about it.

Yemen’s cash liquidity crisis is no longer a temporary disruption caused by war; it has become a defining feature of the country’s fragmented financial system. The institutional split of the Central Bank, the emergence of parallel currency regimes, the halt of oil exports, and the dominance of exchange companies and informal hawala networks have collectively pushed much of Yemen’s liquidity outside formal banking supervision.

The paper argues that the crisis is not simply about the shortage of banknotes, but about the collapse of trust in the institutions responsible for managing money, payments, and financial intermediation. Its effects are felt across the economy: delayed salaries, weakened public services, rising import costs, inflationary pressure, reduced purchasing power, and growing reliance on informal coping mechanisms. Addressing the crisis therefore requires more than technical monetary tools. It calls for a sequenced and politically realistic reform approach that strengthens banking oversight, regulates exchange companies, expands digital financial services, improves non-oil revenue mobilization, and gradually rebuilds confidence in Yemen’s formal financial system.