Ethiopia Devalued Its Currency (The Birr) by 17 Percent Against the US Dollar

Ethiopia has devalued her currency, the Birr.

The Birr (ETB) has been declining in its value for the past several years now. During the communist Ethiopia era (1974 to 1991), the currency was held at a constant exchange rate of $1 USD to 2.10 ETB.

The current government devalued the Birr back in 1993 to about 1 USD = 5 ETB. Since then, the Birr has been falling against the dollar. For example, about 2 years ago, in 2008, the exchange rate was $1 USD to 9.50 ETB. Then, $1 USD was trading at about 13.75 ETB for the past year or so.

Now, in its most recent adjustment on September 1, 2010, the Central Bank of Ethiopia has set the exchange rate at $1 USD to 16.35 ETB (that is about 17% devaluation).

Birr to other currencies converter is found here. You can also find other currency converters here:

• Yahoo (USD to ETB)
• Yahoo (GBP to ETB)
• XE (CAD to ETB)
• XE (EUR to ETB)

Yes, when the Birr is devalued, it is good for those of us living abroad as our money goes further. However, for the vast majority of Ethiopians who are living in the country (now over 80 Million), life will get expensive as Ethiopia is a net importer of goods; from gasoline to machinery, to consumer goods.

I hope that the Central Bank of Ethiopia (http://www.nbe.gov.et and http://nbebank.com) will find the best equilibrium for the exchange rate as a sharply fluctuating rate is not good for any nation.

Below is an article by Bloomberg news regarding the devaluation:

Source: Bloomberg

Ethiopia devalued its currency, the birr, by 17 percent against the dollar, the third such move in the past 14 months, according to the National Bank of Ethiopia.

The exchange rate was quoted at 16.351 per dollar today compared with 13.628 yesterday, according to the website of the Addis Ababa-based central bank. It was trading at 11.381 on July 10 last year.

The devaluation will crimp imports and make it easier to boost foreign currency reserves. Ethiopia needs to raise its reserves to 3 months of import cover from 2.3 months to cushion its economy from external shocks, a June report from the International Monetary Fund said.

There is a “need for a 10 percentage point real exchange rate depreciation” in order to achieve that goal, the IMF said in the report.

Ethiopia’s trade deficit was expected to grow to $7 billion in the fiscal year to July 7 from $6.3 billion the year before, according to IMF figures.

Where is the ETB exchange rate heading? As I mentioned in my previous post, the Birr exchange rate to the dollar is estimated at 22. It is being artificially kept at a higher level.

The above Bloomberg article also suggests that, the the Central Bank of Ethiopia might need to devalue the currency to about 18 ETB to the dollar in the near future. So, those of you residing abroad, wait a while before purchasing a big ticket item in Ethiopia; and those planning to sell in Ethiopia and bring your proceeds abroad might want to sell now before the ETB is devalued again.

Photo: Professor Seid Hassan

An Ethiopian professor of Economics, Seid Hassan, has written a detailed analysis of the exchange rate adjustment. You can read the article by clicking here.

My next blog entry will be on Thursday September 23, 2010.

Mullkam Samint!