Ethiopian Foreign exchange inflation

Today, it is widely rumored that the Parallel Market has reached 67 birr per dollar. Over the past three years, the currency has grown by more than 100%. The legal tender reached an average of 36.5%.

Foreign exchange transactions are taking place on the city’s main thoroughfares. Even in the realm of most banks, the door is open for the dollar to be traded and negotiated as a commodity.

Explaining the consequences of the rise in the value of the dollar is to help the undertaker. His anger is knocking on our door every day. It is scary to think of the test of dress, materials, and consumption in September and when students enter school.

How did the dollar show an increase of 22 birr in a short period of time? Why did the difference with the legal currency expand at this level (22.5)? What is the cause and what is the solution? I have to mention here the relative market rather than the legal market, simply because the relative market has become an increasingly important measure of our economy. It can also be seen in terms of other indicators.

1) Speculation, holding, hording, short-selling and capital flight, as many people sell their property and exchange it for dollars.

2) In some banks, exporters and importers are legal to buy and sell dollars through brokers and the management of the banks.

3) For the purchase of arms and ammunition, the dollar is more important than silver.

4) Under-invoicing, illegal money transfer, under cutting supply.

5) Unbalanced budget deficit, white elephant projects, expanding monetary policy (contributes to up to 40% of total inflation)

What is better? The work is challenging. It should be consistent and sustainable. Short, medium, and long-term plans are needed. Let me take a bird’s eye view of it, add the rest.

1) In the short term: Strengthen monitoring and control, modernization of the system, limiting the demand for foreign exchange luxury, removing brokers who have suppressed the market from the bank and the black market and directing them to policy (going to legalize the black market)

2) In the medium term: Balance the budget deficit (not eliminate it) with a flexible year balance, extend the duration of short and medium term projects except for the most important projects, and adhere to strict fiscal and monitoring policies;

3) Long-term: In the short and medium term, it is necessary to formulate and promote foreign exchange growth policies, abandoning the de facto crawling peg system and expanding the economy to a fully floating system.