The Central Bank of Yemen (CBY) has made it easier for banks to cover import letters of credit (L/Cs) as the country struggles to find sufficient currency to finance much needed imports.

Yemen's foreign exchange reserves had fallen by US$800 million to US$ 5.1 billion by mid-April 2011 from US$5.9 billion in December 2010.

Reserve ratio

The lack of foreign exchange indirectly caused by civil unrest in Yemen has made it harder for traders to obtain L/Cs (DC World News, 15 April 2011).

In response to this, the CBY has reduced the compulsory reserve ratio on foreign currency from 20 per cent to 10 per cent.

Improved liquidity

The move was specifically made to provide liquidity to banks to cover L/Cs used to finance imports.

Governor of CBY, Mohammed bin Hammam, explained that the foreign currency shortage was a result of lower than usual proceeds from oil and gas exports against a continuing requirement for imported foodstuffs, fuel and other essential goods.

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