NBE’s New Forex Rules: 10 Key Points to Know as Birr Drops 30%











Ethiopia’s National Bank Issues Comprehensive Foreign Exchange Directive Amid Currency Devaluation

The National Bank of Ethiopia (NBE) has released a new directive aimed at regulating the foreign exchange market, introducing measures to enhance transparency, stability, and competitiveness. The directive, titled “Foreign Exchange Directive No. FXD/01/2024,” outlines comprehensive regulations affecting banks, authorized dealers, and businesses engaged in foreign currency transactions.

This move comes in the wake of a significant currency devaluation. The Commercial Bank of Ethiopia reported a buying rate of 74 and a selling rate of 76 birr per 1 USD, marking a 30% devaluation within a day. This sharp depreciation has heightened the urgency for clearer and more stringent controls in the foreign exchange market.

Key Highlights of the Directive

Broad Scope and Application:The directive applies to all foreign exchange-related activities in Ethiopia, including the purchase, sale, transfer, borrowing, lending, and exchange of foreign currencies. It mandates that these transactions must comply with the new regulations to ensure financial stability.

Participants in the Foreign Exchange Market:Banks and authorized foreign exchange dealers are designated as key players. The directive outlines their roles, including setting exchange rates, handling foreign exchange transactions, and ensuring proper documentation and reporting. Non-bank entities, such as independent forex bureaus, are also permitted to participate under strict guidelines.

Determination of Exchange Rates:Exchange rates can be freely negotiated between banks and their clients. The NBE will issue a daily indicative exchange rate based on transactions reported by banks, serving as a reference but not as a mandatory transaction rate.

Foreign Exchange Retention Accounts:Exporters are required to repatriate foreign exchange earnings, converting a specified portion into Ethiopian Birr while retaining the remainder in foreign exchange retention accounts. These accounts allow exporters to use foreign currency for specific purposes, such as paying for imports or servicing external debt.

Regulation of Capital Account Transactions:The directive imposes restrictions on capital account transactions, including the repatriation of investments and acquisition of external loans. Only transactions explicitly authorized by the NBE are permitted, with detailed requirements for documentation and approval processes.

Foreign Currency Accounts for Residents and Non-Residents:Guidelines are set for opening and managing foreign currency accounts for residents, non-residents, and foreign entities. The directive details the types of accounts available, the currencies that can be held, and the conditions under which these accounts can be operated.

Forex Bureau Operations:Both bank-affiliated and independent forex bureaus are covered under the directive, which stipulates licensing requirements, operational standards, and transaction limits. The directive aims to ensure that these bureaus operate transparently and effectively.

Service Payments and Receipts:It covers foreign exchange transactions related to services, such as education, healthcare, and travel, requiring banks to verify the authenticity of documents and ensuring that payments align with Ethiopian regulations.

Penalties and Reporting Requirements:Strict penalties are imposed for non-compliance, including fines and operational restrictions. Banks and authorized dealers are required to maintain detailed records and report regularly to the NBE, ensuring transparency and accountability.

Miscellaneous Provisions:The directive includes special allowances for specific sectors, such as industrial parks, and sets cash transaction limits to prevent illegal financial activities. It also provides guidelines for the treatment of foreign exchange transactions related to international remittances and the use of foreign payment instruments.

This comprehensive directive is a significant effort by the Ethiopian government to stabilize its foreign exchange market, promote economic growth, and secure financial stability in the face of recent currency fluctuations. The NBE emphasizes that these measures are critical for fostering a transparent and competitive financial environment in Ethiopia.