With banks unwilling to provide letters of credit (L/Cs) for transactions with Yemen, its central bank has stepped in to provide the finance needed for vital imports.

Remarkably, this is just one way that the Central Bank of Yemen (CBY) appears to be keeping the civil war torn country from financial collapse.

L/C refusals

Western banks reportedly cut credit lines and refused L/Cs for traders shipping food to Yemen in March as a result of the security situation and fragility of the financial system.

In the absence of conventional trade finance, the CBY stepped in and is effectively running the economy, according to central bank officials, foreign diplomats and Yemeni political sources on both sides of the civil war.

Depleting reserves

The CBY has also demonstrated its independence in the face of the country's civil war, paying the salaries of soldiers on both sides.

For the time being, the bank can tap into reserves to keep the economy going, but these have fallen to around US$1.1 billion from US$4.7 billion at the end of 2014 while the IMF has warned that Yemen can now fund less than two months' of imports.

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