Addis Abeba – The National Bank of Ethiopia (NBE) has introduced a new policy limiting the spread between the buying and selling rates of foreign exchange (FX) transactions to 2%. This adjustment, effective 16 October, 2024, comes after a review of the FX market following the adoption of a new regime in July 2024.
“The foreign exchange trading spread shall be separately identified and generally should not exceed 2% for posted rates,” the NBE announced. Banks will retain the flexibility to adjust rates “in light of market conditions and based on transparent and principle-based negotiations with specific customers.”
In addition to capping the trading spread, the NBE requires that FX-related fees and commissions be disclosed separately to customers. “Banks are required to transparently disclose all fees, commissions, or other related charges in transactions with their customers,” stated the NBE. These fees must also be reported to the central bank in accordance with existing practices.
Ethiopia transitioned to a market-based foreign exchange regime on 28 July, 2024, as part of broader economic reforms aimed at addressing long-standing distortions in the economy. This change replaced the previous crawling peg system with a more flexible approach.
Before the shift, commercial banks traded the Ethiopian birr at around 57 to the US dollar, with a spread of less than 1 birr between the buying and selling rates. By October 12, 2024, the average selling rate had soared to 125 birr per dollar, with a spread of more than 10 birr.
After the NBE announced the spread cap, the Commercial Bank of Ethiopia adjusted its rates, narrowing the spread to 113 birr for buying and 115 birr for selling. AS
