Since the launch of Ethiopia’s foreign exchange bureaus in October 2024, the country has seen a transformative shift in its currency exchange landscape. The shift to a market-based foreign exchange system, coupled with opening of new forex bureaus, is significantly improving access to foreign currency. This transition is helping streamline transactions, reduce reliance on the black market, and foster a more transparent financial environment. As competition among bureaus increases, customers benefit from better rates and more options. Ultimately, this shift is positioning Ethiopia’s financial sector for greater stability and growth.
“Forex bureaus play a vital role as intermediaries in Ethiopia’s floating exchange rate system, offering accessible currency exchange points and formalizing previously informal transactions,” said Mustofa Abdella, Business Consultant.
He added that these institutions enhance market efficiency by providing competitive rates and convenient services for both individuals and small businesses. With their presence in urban centers, they contribute to building a more robust and transparent forex market infrastructure, which is crucial for the smooth operation of a floating rate system. Furthermore, forex bureaus help direct foreign currency through official channels, potentially reducing reliance on the informal market.
“Although awareness remains limited within society, forex bureaus are making the forex market more accessible and improving access to foreign currencies,” said Gemechu Birehanu, Seasoned Banker and Capital Market Advisor. He added that banks often view foreign currency transactions as an opportunity to introduce clients to their other services, which can make the process unnecessarily lengthy.
These newly licensed bureaus, operating in the wake of the recent move to a floating exchange rate, have quickly emerged as vital players in the market, offering competitive rates that appeal to both businesses and individuals. For instance, the exchange rate at Rooha Forex Bureau is currently 140.76 ETB per USD, while Ethio Forex Trading S.C. offers 141.78 ETB per USD. In comparison, traditional banks like the Commercial Bank of Ethiopia (CBE) offer rates as low as 126.48 ETB per USD, with Bank of Abyssinia at 127.1986 ETB per USD, and Gadda Bank offering the highest rate among them at 128.45 ETB per USD.
“We are seeing positive feedback as we offer more competitive rates,” said Moges Eshetu, CEO of Rooha Forex Bureau.
Efrem Tesfaye, CEO of Ethio Forex Trading S.C., acknowledged that client numbers have not met expectations, attributing the shortfall to aggressive marketing by banks and the improved availability of foreign currency through official channels. “As a citizen, I’m thrilled to see businesses accessing more foreign currency through formal routes,” he said. “However, as a business, we’re not seeing the customer demand we anticipated.”
“I typically reference the National Bank of Ethiopia’s indicative rate, the average bank rate, and the parallel market rate as benchmarks. From there, I set our rate, aiming to keep it reasonable without overinflating it,” he told Addis Insight.
Efrem highlighted a significant discrepancy between the rates banks advertise on their social media and the actual rates they offer. He pointed out that banks have more flexibility in adjusting their rates, whereas forex bureaus maintain a consistent posted rate. As a result, he believes the gap between the two is minimal.
Mustofa said that forex bureaus often offer more competitive rates than banks due to their lower operational overheads and greater flexibility in adjusting to market conditions. “While banks are required to maintain significant infrastructure and comply with strict regulatory requirements, forex bureaus operate with leaner structures, allowing them to respond more quickly to market changes,” he added. “Their specialized focus on currency exchange enables them to optimize their operations for this service, potentially offering better rates to customers. Additionally, the competition among forex bureaus tends to be fiercer, driving them to offer more attractive rates in order to maintain market share.”
Gemechu believes that forex bureaus are the preferred option for currency exchange than banks. “Their ability to attract a steady flow of customers buying and selling foreign currency is what allows them to maintain these rates,” he explained.
This significant difference in rates has led to a surge in customer traffic, with many flocking to these bureaus for more favorable deals. However, the influx of buyers has resulted in an interesting paradox: while the bureaus are holding an excess of foreign currencies, they are facing a shortage of local currency, as an increasing number of sellers visit to exchange their foreign earnings.
Moges voiced that most foreign visitors prefer physical cash; however, liquidity challenges among commercial banks often pose difficulties.
Even with the competitive rates at forex bureaus, the parallel market still holds the upper hand. Many turn to it for its higher returns, while its quick and hassle-free transactions keep drawing customers. Despite efforts by forex bureaus and the NBE, the appeal of the parallel market remains strong.
Mustofa explained that ongoing foreign currency shortages through official channels create opportunities for informal trading, while the bureaucratic processes in formal institutions may push some participants to seek faster alternatives. He added that the higher rates in parallel markets often reflect the true scarcity of foreign currency and the risk premium tied to informal transactions. Moreover, some businesses turn to parallel markets when they need quick access to foreign currency that formal channels cannot provide fast enough. The difference between official and parallel market rates serves as an indicator of the gap between foreign currency supply and demand in the economy.
