In a momentous departure from its erstwhile tightly controlled policies, the National Bank of Ethiopia (NBE) has granted permission to commercial banks to freely negotiate foreign currency exchange rates with clients and amongst themselves.
They are granted, effective today and alongside exporters the liberty to hold onto their foreign exchange earnings, which is a departure from the prior obligation to surrender forex to the central bank. Non-bank foreign exchange bureaus have been given the nod to conduct business, armed with the capability to trade foreign currency cash notes at market rates.
A part of an extensive overhaul of the country’s foreign exchange regime by the Central bank Governor Mamo Mehiretu, the NBE has committed to limiting its interventions in the forex market, primarily to maintain order. A shift to a market-based determination of exchange rates was announced by Governor Mamo, marking an epoch-making crucial from the historical inflexible policies. Yet, capital account outflows will continue to be under control.
Exporters have now been permitted to hold onto 50pc of their foreign exchange proceeds, a noticeable increase from the earlier 40pc. The waiting list system for banks’ allocation of forex has been done away with, making it easier for importers to gain access. Ethiopian residents can now revel in the simplified rules on foreign currency accounts, which permit them to open accounts based on incomes in forex, inclusive of remittances and salaries. They can open these accounts for disbursements related to foreign transactions. The ceiling on interest rates for foreign loans to private entities has also been removed, a step in the direction of attracting more investment, according to the Governor.
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