5 Things to Know About the National Bank of Ethiopia’s New Foreign Exchange Guidelines

The National Bank of Ethiopia (NBE) has released a comprehensive new guideline to regulate the country’s foreign exchange market, set to take effect on July 29, 2024. This directive aims to streamline and standardize forex transactions among authorized banks and foreign exchange bureaus, enhancing transparency and stability in the forex market.

Key Highlights of the Directive:

1. Market Participation and Operations: The guideline mandates that only authorized banks and licensed foreign exchange bureaus can engage in forex transactions, both in the wholesale and retail markets. It emphasizes adherence to the “Know Your Customer” (KYC) principle to prevent illegal financial activities and money laundering.
2. Exchange Rate Determination: The directive introduces a requirement for all market participants to set daily buying and selling rates for foreign currencies against the Ethiopian Birr, quoted to four decimal places. Transactions must be conducted at freely determined rates, with a minimum trade amount set at USD 50,000 for inter-bank trades.
3. Transaction Reporting: All forex transactions above a threshold of 1,000 in any foreign currency must be reported daily to the NBE. This includes detailed information on the transaction amount, exchange rate, and counterparty, ensuring comprehensive monitoring of forex activities.
4. Operational Hours and Compliance: The inter-bank forex market will operate from 8:00 AM to 5:00 PM on business days, with forex bureaus allowed to extend operations beyond these hours. All transactions must comply with the Foreign Exchange Directive FXD/01/2024, and non-compliance may lead to penalties or corrective measures by the NBE.
5. Technological Integration: The guideline mandates the use of an electronic forex trading platform approved by the NBE for all inter-bank forex transactions, aiming to improve efficiency and reduce the risk of manual errors.
6. Dispute Resolution: The NBE retains the authority to arbitrate disputes between market participants, ensuring fair play and adherence to market regulations.

This new guideline is a significant step towards a more regulated and transparent foreign exchange market in Ethiopia, providing a stable environment for both local and international investors. The NBE encourages all market participants to familiarize themselves with the guideline and ensure compliance to support the overall financial stability of the country.