Inflation Hit Ethiopia Demonetizes Currency To Curb Cash Hoarding | ZeHesha

Inflation Hit Ethiopia Demonetizes Currency To Curb Cash Hoarding

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EMERGING MARKETS

by Terence Zimwara

The Ethiopian government has unveiled a new set of banknotes that are expected to help authorities in curbing cash hoarding, illegal trade and illicit financial flows. The move is also aimed at boosting the liquidity of banks that are struggling to cope with Ethiopia’s cash-based economy.

In a statement released via Twitter on September 14, the country’s Prime Minister, Abiy Ahmed Ali announced the unveiling of the “new Birr notes for 10, 50 & 100 denominations, with the introduction of a new Birr 200 note.”

Meanwhile, a report says the government plans to spend about $97 million (3.6 billion Ethiopian Birr) printing the new notes. On the other hand, Ethiopian citizens are expected to replace their old notes within three months.

The Ethiopian government’s decision to demonetize follows persistent calls for such a move by Ethiopia’s Bankers Association. The bankers contend that the $3.05 billion circulating outside the banking system has “exacerbated the liquidity problems commercial banks have faced this year.”

The report also quotes Wasihun Belay, a development economist based in Addis Ababa who acknowledges that while “changing currency is costly and expensive” he still argues that “it is very important to the economy.” The development economist adds that “introducing new denominations is a step in the right direction” and says “500 and 1000 notes” must be introduced as well.

The Ethiopian economy, which been hit by the global pandemic Covid-19, faces increased inflationary pressures after the figure topped 20% in August. This follows increased printing of currency to finance the country’s budget deficit. Both the World Bank and IMF have now downgraded the country’s forecasted annual growth to 3.2% from 7.2%.

Still, Yinager Dessie, governor of the National Bank, is optimistic that the “introduction of the new notes is going to be instrumental in reduce cash-based transactions.” In August, the National Bank introduced cash withdrawal and limits on withdrawals as it moved to influence activity in the informal economy which “has a substantial share in the economy.”

Ethiopia last demonetized its currency at the end of the Ethiopian-Eritrean deadly civil war two decades ago.

2 Comments

  1. Banks must trace back where the money came from before exchanging specially if the notes are new.That way the fake Birr notes that were printed by banks like Wogagen will be delegitimized.In the month of August alone was 20%. That was due to illegally printing and bringing into circulation a large quantity of Birr notes. That is very sad. Extreme measures have to be taken to stabilize the economy of the country.

  2. The majority of Ethiopians are subsistence farmers who farm small plots of lands which the whole family depends on. The majority of Ethiopians use soil and hay to build a traditional one room Ethiopian style cottage where the whole family and their farm animals live in with no access to restroom. This cottage is also a barn where their farm animals live within it with flea and bed bugs infestations, maybe card board division within it to demarcate where the adults sleep in. Bathing and using the restroom facilities is done outside often in rivers. Those who reside in the cities mostly engage in crimes , prostitution , asking help from relatives living outside Ethiopia or beg money from religious missionaries , tourists or the few elites within Ethiopia just to survive in because what people earn monthly from honest work is not enough to last two days let alone a month. That is why each year more than two hundred thousand young Ethiopians go in illegal immigration to other African countries or war torn Yemen making remittance money sent back to Ethiopia the backbone money for their family members in Ethiopia to survive on .

    In 1974 when the communist Derg political party got to power overthrowing the Emperor Hailesselasie’s regime $1 USD = $2.05 Ethiopian Birrs

    In 1991 when the capitalist EPRDF got to power overthrowing the communist Derg’s regime $1 USD = $2.07 Ethiopian Birrs

    Now in 2020 $1 USD = $36.58 Ethiopian Birrs

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