On Monday, Ethiopia’s central bank floated the birr, leading to a 30 per cent devaluation against the US dollar. The currency now stands at 74.73 birr per dollar, down from 57.48 last Friday, according to the Commercial Bank of Ethiopia.
Floating a currency means allowing its exchange rate to be determined by the foreign exchange market through supply and demand rather than being fixed or pegged to another currency like the US dollar. This usually results in a fluctuating exchange rate that can change frequently based on market conditions.
This move aims to secure support from the International Monetary Fund (IMF) and facilitate a long-delayed debt restructuring. The East African nation has been grappling with high inflation and foreign currency shortages. It defaulted on its government debt last December, becoming the third African country. Following a peace deal in November 2022 that ended the conflict in Tigray, Ethiopia resumed its prolonged negotiations with the IMF for a new lending program.
The central bank announced that banks can now buy and sell foreign currencies at freely negotiated rates, with limited intervention from the bank itself. Prime Minister Abiy Ahmed introduced these reforms late Sunday, and central bank governor Mamo Mihretu confirmed that Ethiopia expects to receive $10.7 billion in external financing from the IMF, World Bank, and other creditors. Reuters reported that importers welcomed the new policy, as it eliminates reliance on the black market for securing dollars.
The IMF’s executive board will discuss a new program for Ethiopia soon.
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