Addis Abeba – A month following Ethiopia’s transition from a fixed exchange rate system to a market-based regime, authorities reported a substantial narrowing of the disparity between the official and parallel foreign exchange markets.
At the launch of the “DEBO” remittance campaign held on 05 September, 2024, Mamo Mihretu, the governor of the National Bank of Ethiopia (NBE), disclosed that the premium between the official and black markets had decreased from over 100% to a mere 4% within a single month.
“This indicates that the significance and influence of the parallel market are diminishing and weakening,” he stated.
Implemented on 28 July, 2024, the new macroeconomic reforms aim to rectify a longstanding distortion within the Ethiopian economy.
A significant disparity between the official and parallel foreign exchange markets has been a primary macroeconomic challenge for Ethiopia.
Prior to the reforms, the official exchange rate was 56.55 birr per US dollar, while the Ethiopian birr depreciated to a record low of 116 against the US dollar on the parallel market.
The discrepancy between the official and parallel markets, which stood at approximately 74% in January 2021, also widened considerably to 105% by March 2024.
According to Mamo, the recent narrowing of the disparity between the official and parallel foreign exchange markets is attributable to the NBE’s commitment to overseeing foreign exchange management guidelines and ensuring a market characterized by healthy competition and transparency.
The governor also disclosed that the confusion and disparate foreign exchange rate determination observed by banks during the initial days of the new foreign exchange regime are being addressed, and a new framework for foreign exchange management is emerging.
Despite official claims, the foreign currency exchange regime reform was accompanied by a significant depreciation of the local currency, the birr.
Prior to the adjustment, commercial banks operating in the country were trading the currency at around 56.55 birr per dollar.
A day after the announcement of the reform, the state-owned Commercial Bank of Ethiopia (CBE) reported a 30% decline in the birr’s value against the USD, with the exchange rate plummeting to 74.73 birr per dollar.
By 05 September, 2024, the buying rate at CBE had surged to 106 birr.
During the launching ceremony, Mamo announced that the central bank will commence issuing licenses for private foreign exchange offices beginning next week, encouraging individuals interested in the money transfer business to seize this opportunity.
“While this legitimate opportunity is available, I would like to emphasize that legal action will be taken against those engaged in illegal money transfer business,” the governor warned.
He noted that if remittances are properly organized and managed, their contribution to foreign currency generation and the bolstering of foreign exchange reserves will be substantial.
Researches indicate that informal networks have been a prevalent method for Ethiopians to send money home.
According to a study titled “Scaling up formal remittances to Ethiopia,” as much as 78% of total annual remittances may have been sent through informal channels.
Last fiscal year, Ethiopia secured over $6 billion in remittances.
In his speech, the governor declared that the NBE has completed preparations to provide user-friendly and secure digital methods and banking solutions to millions of Ethiopians and the Ethiopian diaspora to invest their foreign currency wealth for the country’s growth.
Additionally, Mamo disclosed the launch of a large-scale remittance campaign called “DEBO” for the upcoming six months.
According to the NBE, the remittance campaign will involve a significant initiative, coordinated by the NBE, to encourage Ethiopians abroad to remit funds through banks by offering attractive exchange rates, opening local or foreign currency accounts, and taking advantage of various savings and lending products linked to remittances.
“As part of this initiative, all banks have collectively allocated a loan of 100 billion birr,” Mamo disclosed. “This loan will be disbursed in the form of house and investment credit to Ethiopians residing abroad and who open foreign currency accounts in domestic banks.” AS
