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2024 Ethiopian foreign exchange rate policy

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The National Bank of Ethiopia (NBE) in 2008

On 29 July 2024, the National Bank of Ethiopia (NBE) announced relaxing of restrictions on currency value of the Ethiopian birr to secure a loan of $10.7 billion from the International Monetary Fund (IMF) and World Bank.[1] NBE announced the Ethiopian birr would be devalued by 30% against the US dollar to promote market based foreign exchange system amidst the forex crisis. Many Ethiopians were concerned that the policy would increase the cost of living and exacerbate the rate of inflation.[2]

Starting on 1 August, the government ordered the closure of dozens of business entities that caused the prices of basic commodities to surge in Addis Ababa. According to Trade Bureau of Oromia, 19 businesses closed and 16 individuals were detained.[3]

Event

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On 29 July 2024, the National Bank of Ethiopia (NBE) announced to ease restriction on currency value of the Ethiopian birr to secure a loan of $10.7bn (£8.3bn) from the International Monetary Fund (IMF) and World Bank. This sharply declined by 30% against the US dollar. Upon hearing the news, Ethiopians were concerned over the rise of cost of living amidst inflation. Ethiopia has been grappling with a foreign exchange crisis exacerbated by persistent civil wars, resulting in a shortage of foreign currency. Under this new policy, the Ethiopian birr would be determined by the market.[4][5]

The policy came into effect after the government negotiated with the IMF and World Bank. The IMF urged Ethiopia to liberalize its foreign exchange market as a condition for receiving $10.7 billion in external financing.[6] Prime Minister Abiy Ahmed congratulated the government on the decision to float the birr, stating that such a measure would lead Ethiopia to prosperity.[7] On 1 August, the government ordered the shutdown of dozens of businesses due to the surging prices of basic commodities in Addis Ababa. An Addis Ababa City Trade Bureau spokesperson, Sewnet Ayele, said "the businesses were caught making unreasonable price increases, mostly on food items. The stocks were imported before the new exchange rate." Accordingly, 71 business entities have been affected. In Oromia Region, 19 businesses closed and 16 individuals were detained according to the head of the Trade Bureau of Oromia Meseret Assefa.[3]

References

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  1. ^ "The National Bank of Ethiopia Announces New Policy on the Treatment of FX-Trading Related Spreads and Fees". National Bank of Ethiopia. Retrieved 16 October 2024.
  2. ^ "Ethiopia's currency dives by 30% as IMF-backed reforms to stabilize the economy take effect". AP News. 2024-07-30. Retrieved 2024-08-02.
  3. ^ a b "Ethiopian local authorities crack down on price hikes after currency float". www.cnbcafrica.com. 2024-08-01. Retrieved 2024-08-02.
  4. ^ "Ethiopia birr: Currency falls 30% amid IMF-friendly policy change". www.bbc.com. Retrieved 2024-08-02.
  5. ^ "Dollars Vanish From Ethiopia's Streets as Residents Hoard Forex". Bloomberg.com. 2024-07-31. Retrieved 2024-08-02.
  6. ^ Clynch, Harry (2024-07-31). "Will The Devaluation Of The Ethiopian Birr (ETB) Stoke Inflation?". Disruption Banking. Retrieved 2024-08-02.
  7. ^ Account (2024-08-01). "Devaluing the Birr: Inflicting pain on Ethiopians (Part I)". Borkena Ethiopian News. Retrieved 2024-08-02.
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