Gap Between Ethiopian Currency’s Official and Parallel Market Exchange Rate Grows to New Record – Africa Bitcoin News

The Ethiopian birr currency’s parallel exchange rate against the U.S. dollar recently dropped to a low of 92 birrs per dollar, a report has said. The report added that following this latest plunge, the gap between the birr’s official and parallel market exchange rates has widened to a record high.

The Cause is the Resumption Of Fighting between Ethiopian Government Forces And Tigray Rebels

The gap between the Ethiopian currency’s official and parallel market exchange rate against the greenback widened to a new record higher after the latter rate plunged 92 birrs for every dollar. The official currency equivalent of 52.5 local currencies is 1 dollar.

According to a Bloomberg report that quotes Fikadu Digafe, the vice governor and chief economist at the National Bank of Ethiopia (NBE), the resumption of hostilities in the Tigray region is one of the key factors that caused the Ethiopian currency’s latest plunge. Many media reports suggest that fighting between Tigray rebels and the Ethiopian government resumed in August, five months after a truce in hostilities.

Due to the high cost of war, monetary policies are ineffective

Explaining how the fighting impacted Ethiopia’s economy, Digafe identified the imbalance between the supply of foreign exchange and the demand as a problem that afflicts the country. In addition, the vice governor also suggested that the high cost of the war meant the NBE’s monetary policies are now largely ineffective.

In addition to the financial costs of fighting, Ethiopia also has the issue of shrinking foreign currency reserves. As per the report, the landlocked horn of Africa state’s reserves stood at $3.3 billion by the end of 2021. This was enough to cover Ethiopia’s import costs for just 1.9 months.

Therefore, as part of efforts aimed at boosting the country’s foreign exchange reserves, the NBE effectively devalued the birr by 26% between February and May. Bitcoin.com News reported that the central bank now has restrictions on how much foreign currency Ethiopians can take out.

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Terence Zimwara

Terence Zimwara was a Zimbabwe author, journalist and writer who won the award. He is a prolific writer on the economic woes of African countries, as well as digital currencies that can be used to provide an escape path for Africans.