As banks compete for scarce dollars, concerns grow over the transparency and effectiveness of Ethiopia’s forex auctions.

Ethiopia’s commercial banks are facing a severe liquidity crisis, worsened by recent policy changes and financial sector inefficiencies. The National Bank of Ethiopia’s (NBE) strict credit cap and high demand for cash have left banks struggling to meet withdrawals and sustain lending. The shift to a market-based foreign exchange system has further drained liquidity, making it harder for banks to issue loans and increasing financial distress.

Amid this crisis, NBE’s recent forex auction has sparked concerns among experts, particularly about its timing and lack of transparency. With limited cash available, banks are being forced to prioritize forex bidding over lending, potentially worsening the credit shortage.

“Cash is disappearing from the banking system as businesses struggle to transact. Some banks are even buying local currency, birr, at an interest rate,” said Getachew, an economist and public policy expert. “The first auction after floating the birr was necessary to show stability, but this one raised serious questions.”

He added that while forex auctions help when the birr depreciates or forex is scarce, NBE’s process for deciding auction timing and amounts remains unclear.

“There is no data to verify if the allocated forex matches actual market demand,” he said, questioning whether the auctions address shortages or create more uncertainty.

Economist and social media commentator Wassihun Belay echoed these concerns, criticizing the lack of transparency.

“We need data for investment decisions and to help businesses choose banks wisely,” he said. “Auctions should be announced earlier so banks can prepare, and NBE must ensure smaller banks aren’t excluded.”

He also urged NBE to publicly disclose future auction dates to reduce uncertainty.

“Banks’ forex rates should be monitored since some add extra commissions beyond the official rate,” he added. “NBE’s decisions should not be unpredictable.”

Wassihun further claimed that although NBE stated 27 banks received forex, only five banks—those with the highest bids—actually secured it.

Getachew acknowledged that despite its flaws, the auction provides a reference exchange rate, helps banks manage forex reserves, and partially meets demand. However, he warned that without oversight, the forex could flow into the black market.

Following the auction, the parallel market saw sharp fluctuations, with the dollar trading at ETB 145–150, widening the gap between the official and black market rates.

Getachew argued that Ethiopia’s foreign exchange market is not truly market-based.

“A real market-based forex system responds to global economic forces, but Ethiopia’s rates are still controlled by state-owned banks like the Commercial Bank of Ethiopia (CBE) and the Development Bank of Ethiopia (DBE),” he said.

He emphasized that transparency is critical.

“Auction details—who bid and how much—must be public,” he argued. “This helps decision-makers plan and allows analysts to track market trends.”

Without this, he warned, businesses and investors will struggle to navigate Ethiopia’s forex system.

The Reporter stated that the latest auction had bids ranging from ETB 130 to ETB 141 per USD. One bank secured just USD 200,000 at ETB 141 per USD, while the average rate was ETB 135.6185—ETB 10 above the official exchange rate. NBE offered a total of USD 60 million.

A financial expert told The Reporter that many banks rely on these auctions as their only source of forex, especially for fuel imports. Smaller banks, in particular, prefer auctions over buying from larger banks, which charge high fees.

An economist warned that uncertainty about future auctions is driving banks to buy as much forex as possible, potentially increasing inflation.

“The new rate of nearly ETB 136 per USD could push up prices. Exporters might hold onto goods, expecting the birr to weaken further and fetch higher profits later.”

Ethiopia’s forex auction system is struggling to function as a true market-based exchange. Without better transparency and planning, it risks worsening liquidity shortages, driving up inflation, and fueling speculation. Experts agree: for the system to work, NBE must improve oversight, ensure fair participation, and make auction details public.