In the span of just a few days, Ethiopia’s foreign exchange market went from chaos to crackdown and possibly, a new kind of clarity.
By the end of July, the unofficial (parallel) market exchange rate had breached 170 birr per USD, igniting panic among traders, importers, and the diaspora. The National Bank of Ethiopia (NBE) had paused its regular auctions, uncertainty was growing, and everyone from banks to black market operators waited for the central bank’s next move.
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Then came August 5 and things moved fast.
The Turning Point: August 5 Auction Shakes the Market
After skipping a few FX auctions, the NBE returned with force, dropping a record-breaking $150 million into the market through its 9th FX auction of the year. The offer was split among 28 commercial banks, and the weighted average exchange rate settled at 138.26 birr/USD, showing a clear intention to realign the official rate with market realities post-floatation.
The NBE attributed the move to improving inflows from exports, donor funds, and crucially remittances. This influx of dollars, they believed, was strong enough to justify such a large auction.
But the real impact? It was immediate and loud.
Banks React: Rates Jump Overnight
The same day, August 5, banks began adjusting their exchange rates. Some sharply, others cautiously.
The frontrunner?
- Ahadu Bank: Among the first to significantly hike its rates on the same day as the auction, signaling the start of a chain reaction.
By August 6, most commercial banks had followed suit:
- Amhara Bank: Selling at 140.3520, buying at 137.6000, the highest rate in the formal market.
- Awash Bank: Selling at 139.7511, buying at 137.0109.
- Gadaa Bank and others followed with similar increases.
For many market watchers, this was the clearest sign yet that the floating of the birr was truly taking hold.
Meanwhile… The Parallel Market Was on Fire
While the banks were reacting to official signals, the parallel market (or black market) had already reached new highs.
On July 29, before the auction, rates had already climbed above 170 birr per USD, fueled by:
- The absence of NBE auctions.
- Mistrust in formal channels.
- Widespread use of unlicensed money transfer operators abroad.
By August 7, forex bureaus were still riding the wave. For example:
- Haron Forex Bureau was buying at 158 and selling at 161.16.
Even after the $150M injection, the gap between official and parallel rates remained sharp, over 20 birr in many cases, showing just how deeply embedded informal channels had become.
NBE Fights Back: Crackdown, Name-and-Shame, and Warnings
The auction wasn’t the only tool the NBE deployed.
Alongside it came a multi-pronged enforcement strategy:
- Diaspora Warning: NBE issued a direct public advisory to the diaspora, urging them to avoid sending money via unlicensed operators like:
- Shegey (Silver Spring, Falls Church)
- Adulis (Falls Church)
- Ramada Pay (Kaah)
- TAAJ (Minneapolis)
- Illicit Flow Crackdown: Governor Mamo Mihretu delivered a bold message: “We are now backed by technology that allows us to trace transactions… Expropriation of funds is on the table.”
- Future Threats: Mamo hinted at upcoming actions against operators in the United Arab Emirates, a hotspot for informal FX activity in East Africa.
A Market in Transition—But Still Tense
The FX auction and resulting bank reactions mark a major turning point in Ethiopia’s push toward a market-determined exchange rate system, a key reform supported by the IMF.
Behind the scenes, banks are now releasing $500M monthly, double the volume from a year ago. Meanwhile, FX inflows surged 33% last year, reaching $32 billion, thanks to strong coffee and gold exports.
Still, the market remains fragile. The parallel market is far from dead, and trust in formal systems, especially among traders and the diaspora, remains shaky.
What to Watch Next
- Bank reaction: Will rates continue to rise to match black market levels?
- Public behavior: Will the diaspora and local businesses begin moving back into formal channels?
- NBE’s enforcement power: Can it actually shut down the shadow market?
The story of Ethiopia’s FX market in early August 2025 is one of reform meeting resistance, liquidity meeting legacy behaviors, and a central bank trying to walk a fine line between market liberalization and macroeconomic stability.
The sharp exchange rate adjustments by commercial banks and the still-high parallel rates show that we’re in the messy middle, but maybe, just maybe, progress is being made.
Keep an eye on the forex market here: https://data.stockmarket.et/exchange-rates
