Ethiopia has strengthened its economic ties with Russia by reaching a new trade agreement that allows transactions in their respective national currencies, bypassing the US dollar. This move is part of Ethiopia’s broader strategy to address its persistent foreign currency shortages while deepening trade relations with global partners outside the Western financial system. The agreement aligns with Russia’s push to expand non-dollar trade mechanisms in response to Western sanctions, further integrating Ethiopia into a growing network of nations seeking alternatives to the dollar. However, such moves could expose Ethiopia to potential economic repercussions, including a 100% tariff from the United States.
Ethiopia Joins Russia’s Non-Dollar Trade Network
Ethiopia, along with Nigeria and Tunisia, has formally entered into an agreement with Russia to conduct trade transactions using their respective national currencies. This decision is part of Moscow’s broader strategy to establish alternative trade mechanisms following Western sanctions imposed after the war in Ukraine.
With this deal, Ethiopia joins a growing list of 40 countries that have established non-dollar trade agreements with Russia, according to the Kremlin. Several African nations, including Algeria, Egypt, Morocco, and South Africa, were among the first to receive approval for similar arrangements in September 2023.
Russia has been actively working to bypass US-led financial restrictions by promoting direct currency exchanges with “friendly and independent states.” Ethiopian trade representatives, along with those from Argentina, Cambodia, Laos, Mexico, Nigeria, and Tunisia, have been granted licenses to conduct foreign currency transactions under Russia’s new financial framework.
The agreement is expected to help Ethiopia alleviate its persistent foreign currency shortages and streamline trade with Russia. It also strengthens bilateral economic relations, positioning Ethiopia as a key player in emerging non-dollar trade networks.
Ethiopia’s UAE Currency Swap and Broader Economic Strategy
Ethiopia’s engagement with Russia follows its landmark currency swap agreement with the UAE in July 2023. Under that deal, the central banks of both countries agreed to exchange 46 billion Ethiopian Birr and 3 billion UAE Dirhams, allowing businesses to conduct transactions in their local currencies.
The memorandum of understanding, signed in Addis Ababa by Mamo Mehretu, Governor of the National Bank of Ethiopia, and Khalid Mohamed Balama, Governor of the Central Bank of the UAE, reflects Ethiopia’s strategic push to diversify its foreign exchange mechanisms. This deal aims to facilitate smoother trade transactions and reduce the country’s dependence on the US dollar.
Potential U.S. Response: 100% Tariff on Non-Dollar Trade
Ethiopia’s move toward non-dollar trade, while economically strategic, may come with significant geopolitical risks. Reports suggest that the United States is considering imposing a 100% tariff on countries that actively reduce their reliance on the dollar as the world’s primary reserve currency.
Former U.S. President Donald Trump previously warned of punitive measures against nations seeking alternatives to the dollar, and Washington has closely monitored de-dollarization trends. If the Biden administration or a future U.S. government moves forward with such tariffs, Ethiopian exports could face substantial barriers in American markets, adding pressure to an already fragile economy.
Ethiopia’s Balancing Act: Economic Diversification vs. Global Risks
Ethiopia’s decision to engage in currency swaps with both Russia and the UAE underscores its urgent need for foreign exchange solutions. However, the global financial landscape is shifting, with increased polarization between dollar-dependent economies and those seeking alternatives.
As Ethiopia continues on this path, it must carefully navigate potential economic consequences. Strengthening trade partnerships outside the dollar system could provide short-term relief from forex shortages, but it also risks triggering diplomatic and financial countermeasures from major Western economies.
The coming months will be crucial in determining whether Ethiopia’s bold economic diversification efforts will bring stability—or provoke economic retaliation from the United States and its allies.
