A major change in Ethiopia’s economic strategy has been declared by the government: the adoption of a market-based exchange rate system. This means that banks can now buy and sell foreign currencies at freely negotiated rates to and from their clients as well as among themselves. The National Bank of Ethiopia (NBE) will only make limited interventions to support the market in its early stages and if necessary due to disorderly market conditions.

The guidelines governing banks’ foreign exchange allocation have been completely removed, according to a statement issued by the National Bank of Ethiopia, the country’s central bank. Non-bank foreign exchange bureaus are now free to buy and sell foreign currency cash notes at market rates. With this adjustment, the NBE’s surrender rules will no longer apply, enabling exporters and commercial banks to keep their foreign exchange, significantly increasing the amount of FX supplied to the private sector.

Additionally, foreign currency accounts can now be opened by Ethiopian citizens based on remittance inflows, overseas transfers, foreign exchange-based salaries or rental income, and other specific circumstances. These accounts can also be used to pay for foreign services. The National Bank of Ethiopia, which tightened currency controls in 2022 to safeguard the exchange rate, as reported by BitKE, says it is loosening regulations regarding the quantity of foreign currency cash notes tourists are allowed to bring into or out of Ethiopia.

Ethiopia, a country with a $126.8 billion GDP, will soon allow foreign companies to trade securities there. The changes are purportedly a component of the larger Home-Grown Economic Reform Program (HGER 2.0), which aims to solve long-standing structural problems and modernise the economic structure. In a separate statement, Prime Minister Abiy Ahmed stated that the new exchange rate system intends to solve the scarcity of foreign exchange and lift restrictions on economic growth by bringing the Ethiopian currency into line with market realities.

The government hopes that by promoting private sector investment and bringing inflation under control, this action will make Ethiopia’s economy more competitive.