Economists in Yemen have attributed the increased value of the Yemeni riyal to a rise in confidence following the formation of the unity government in December.
The increase in the exchange rate of the riyal against the dollar rose from 245 to 215 riyals in mid-December marked the first time the riyal gained value since political demonstrations began in February.
"The low exchange rate of foreign currency is not a direct result of economic conditions but is a result of the stability and political calm following the formation of the national reconciliation government, which had a positive effect on the market. Donors also pledged to support Yemen's stability and the development process," said Mohammed Saad al-Rawdhi, under-secretary for the Central Bank of Yemen.
Al-Rawdhi told Al-Shorfa that the central bank also took action that prevented the riyal from falling to as low as 300 riyals per dollar.
"The bank undertook several measures, including direct sales to currency exchange brokers and pumping dollars into the market via commercial banks," al-Rawdhi said.
Some citizens complained about the unwillingness of foreign exchange businesses and money changers to sell dollars, which limited consumers' ability to buy dollars when the price declined.
Abdo Mohammed, a University of Sanaa student, said he visited several foreign exchange firms in Sanaa to get $1,000 to send to his brother who is studying for a master's degree in Malaysia. He said the exchange rates were too high despite the drop in the dollar's value.
"I purchased dollars at a high price, exceeding 238 riyals per dollar when the market price did not exceed 220 riyals per dollar at the time," Mohammed said.
Some economists said the decline in the dollar's value against the riyal may have been artificially contrived by large exchange firms.
"Currency exchange firms might resort to speculation by injecting some of their reserves into the market to lower the price of the dollar to low enough levels to encourage people to return the dollars to the market that they withdrew from banks and stashed away in their homes. The exchanges then raise the price of the dollar and achieve fantastic profits," economist Abdul Aziz al-Absi told Al-Shorfa.
Dr. Taha al-Faseel, a professor of economics at the University of Sanaa and advisor to the minister of industry and commerce, told Al-Shorfa that increasing a country's productivity enhances the strength of the local currency.
"The purchasing power of the Yemeni riyal declined considerably because of the lack of confidence in the market, which led to a 'dollarisation' of the Yemeni market. The dollar supplanted the Yemeni riyal in transactions and even riyal-based transactions were based on its exchange rate against the dollar. That is because Yemen is a consuming not a producing state," he said.
Al-Faseel said falling demand for the dollar and a decline in imports in recent months increased reserves in foreign currency, especially the dollar.
"Another contributing factor was the stability that followed the formation of the government and the military committee's reduction of security tensions, which assured the market, raised optimism among the public, and led to the drop in the exchange rate against the Yemeni riyal," he said.
Al-Faseel said the central bank should strengthen regulation of foreign currency exchange firms, enhance the role of commercial banks in financing imports, and stabilise exchange rates at their current levels to prevent another spike in the price of the dollar.
"Yemen is entering a period of increased demand for imports after a year of stagnation, which could lead to an increase in demand for the dollar relative to its supply,” he added.