The National Bank of Ethiopia has implemented a new policy limiting foreign exchange trading spreads to 2%, effective October 16, 2024. This move is a key part of Ethiopia’s economic reforms, aiming to stabilize the currency market and enhance transparency in forex transactions after shifting to a market-based exchange rate system in July 2024.
Before the reforms, commercial banks traded the Ethiopian birr at around 57 to one US dollar, with a spread of less than one birr. By October 12, 2024, the average selling rate had increased to 125 birr per dollar, with a spread exceeding 10 birr. Following the central bank’s directive, the Commercial Bank of Ethiopia adjusted its rates to buy dollars at 113 birr and sell at 115 birr.
The new policy also mandates banks to disclose all fees and commissions separately, ensuring transparency in foreign exchange transactions. While maintaining flexibility in rate adjustments, the central bank aims to balance stability with market dynamics. Ethiopia’s collaboration with the International Monetary Fund and approval of a $1 billion credit facility further signify the country’s commitment to economic growth and attracting foreign investors.
Navigating Economic Reforms in Ethiopia
These reforms seek to close the gap between official and black market exchange rates, deterring illegal currency trading. As Ethiopia continues on this path towards a more open and market-oriented economy, the impact of these measures on its economic landscape and global standing will unfold in the coming months.