Liberalization of foreign exchange market in Ethiopia

Date: July 3, 2024
The National Bank of Ethiopia (NBE) has decided to allow market forces to determine the value of Ethiopia’s currency, the Birr, and eased restrictions on the amount of foreign currency held by commercial banks and exporters as part of a raft of measures to increase the supply of dollars and boost economic activity in a country plagued by severe hard currency shortages. Following up on the Ethiopian Government’s recent statement regarding Ethiopia’s economic reform program, the NBE announced a major revision of the country’s foreign exchange system effective on 29 July 2024. The NBE stated in its press release that the reform introduces a competitive, market-based determination of the exchange rate and addresses a long-standing distortion within the Ethiopian economy. The implementation of the reform will be guided by a new Foreign Exchange Directive (FXD/01/2024).
The justifications to revise and consolidate various directives related to the regulation and operation of Ethiopia’s foreign exchange markets, as stated in the preamble of the Green Directive, are:
(i) to create a well-functioning foreign exchange market with clearly specified rules, roles, and responsibilities to promote trade, financial stability, and economic growth; and
(ii) to establish a more open and competitive foreign exchange market to attract substantial foreign exchange inflows, ensure efficient resource allocation, and foster transparency in foreign exchange transactions.

• Mehrteab Leul Kokeb
• Getu Shiferaw