How War Could Push Ethiopia’s Birr Past 200 Per Dollar

Ethiopia’s currency has already fallen dramatically since the July 2024 foreign-exchange reform. With the official rate above 160 birr per dollar and the parallel market around 180 in late September 2026, a wider conflict could amplify pressure through defense spending, weaker exports, remittance diversion and renewed dollar hoarding. The 200-birr threshold is a risk scenario — not a certainty.

By Addis Insight  •  September 2026

Ethiopia’s foreign-exchange reform was designed to end one of the economy’s most persistent distortions: a tightly controlled official exchange rate that could not supply enough dollars to businesses, importers and households. On July 29, 2024, the National Bank of Ethiopia moved toward a market-determined exchange-rate system as part of a broader reform program supported by a $3.4 billion IMF Extended Credit Facility.

Two years later, the adjustment is still working through the economy. The birr has moved from 57.5 per US dollar before the reform to more than 160 in the formal market, while parallel-market transactions have approached 180. The country has also relied on repeated foreign-exchange auctions and external financing to keep the formal market supplied.

That leaves a new question hanging over the economy: what happens if a broad domestic war shock arrives while the currency is already under pressure?

The answer is not that 200 birr per dollar is guaranteed. But the distance is now small enough that a sustained conflict could push the exchange rate toward — and potentially beyond — that psychological threshold through several reinforcing channels.

The numbers to watch

Why the Birr was floated

Before July 2024, Ethiopia operated a heavily managed exchange-rate system. Dollars were rationed through official channels, the birr was widely considered overvalued, and firms often waited for foreign currency needed to import machinery, fuel, raw materials and medicines.

The shortage pushed demand into the parallel market, where the dollar traded at a substantial premium. At the same time, official reserves had fallen to extremely low levels, leaving authorities with limited room to supply the market.

The 2024 reform changed the mechanics of the system. Commercial banks were given greater freedom to negotiate exchange rates, private foreign-exchange bureaus were permitted under new rules, and the government committed to a more market-based price for foreign currency.

The IMF’s fifth review of the program, completed in July 2026, said Ethiopia had made progress on exports, reserves and revenue mobilization, while also warning that security risks and external shocks could weaken fiscal and external balances.

The float narrowed the gap — but did not remove the shortage

The first effect of the reform was immediate depreciation. The official rate dropped sharply and then moved above 100 birr per dollar during the early price-discovery period.

For a time, the gap between the formal and parallel markets narrowed significantly. But the underlying problem did not disappear: Ethiopia still does not generate enough foreign currency to meet the full demand of importers, investors, government agencies and households.

As formal supply tightened again, the parallel market regained importance. By 2025 and 2026, the difference between official and informal rates repeatedly widened, especially during periods of strong import demand and political uncertainty.

This matters because Ethiopia’s exchange-rate system now behaves like a pressure valve. When dollars become difficult to obtain from banks, buyers move into informal markets. The parallel rate weakens first, and pressure then builds on the formal rate to adjust.

Why war changes the equation

A wider armed conflict would not affect the birr through one single event. It would hit the foreign-exchange system from several directions at the same time.

1. Defense spending consumes scarce dollars

Modern warfare requires foreign currency. Fuel, communications equipment, vehicle parts, aviation components, electronics and specialized military hardware are often imported even when some final assembly takes place domestically.

If defense demand rises, the government faces a difficult allocation choice: use scarce dollars for military and strategic imports, or keep supplying commercial banks for civilian trade. A shift toward defense procurement would reduce foreign currency available for manufacturers and importers.

Higher military spending could also widen the fiscal deficit. If that deficit is financed through additional domestic money creation, inflationary pressure would intensify and the birr’s purchasing power would weaken further.

2. Conflict can cut the supply of dollars

Currency stability depends not only on demand for dollars but also on the country’s ability to earn them.

War can disrupt agricultural production, mining, logistics and export corridors. Northern and western Ethiopia are important for products such as sesame, oilseeds and gold. Fighting that displaces workers or interrupts transport would reduce formal export receipts precisely when the country needs more foreign exchange.

The result is a double shock: demand for dollars rises while the supply of dollars falls.

3. Remittances could move back into informal channels

Diaspora remittances are one of Ethiopia’s most important sources of external liquidity. When the gap between bank and street exchange rates narrows, remitters have a stronger incentive to use formal channels.

Political instability can reverse that behavior. If households fear bank restrictions, rapid inflation or further currency depreciation, more transactions can migrate toward informal Hawala networks. Dollars are then settled outside Ethiopia while recipients are paid birr locally, depriving banks of foreign currency that would otherwise enter the formal system.

4. External financing could become more difficult

The current exchange-rate regime is supported by multilateral financing. The IMF’s four-year program, approved in July 2024, is worth about $3.4 billion, and by July 2026 cumulative disbursements had reached roughly $2.65 billion.

A severe domestic conflict would create new fiscal and balance-of-payments pressures and could complicate future program reviews, donor support and debt negotiations. The exact response from lenders would depend on policy performance and the nature of the crisis, but a loss or delay of external financing would leave fewer dollars available to stabilize the market.

5. Expectations can move the exchange rate before the economy does

Currency markets are also driven by expectations. If businesses believe the birr will weaken sharply, importers have an incentive to buy dollars early. Households with savings may do the same.

That defensive behavior can become self-reinforcing. Extra demand pushes the parallel rate lower, confirming fears of depreciation and encouraging even more buyers to seek dollars.

The danger is not one shock. It is several shocks arriving at the same time: more dollar demand, fewer dollar inflows, weaker confidence and less room for the central bank to intervene.

Why 200 has become a meaningful threshold

At a parallel rate of roughly 180 birr per dollar, reaching 200 requires a further depreciation of about 11 percent. From an official rate around 163, the move is larger — roughly 23 percent.

That does not make 200 inevitable. But it means the threshold is no longer a distant hypothetical.

If the parallel rate moved above 200 while banks remained near 160–165, the spread between the two markets would widen sharply. That would recreate one of the distortions the 2024 reform was designed to eliminate.

Authorities would then face a difficult choice: allow the official rate to adjust, spend more reserves to supply the market, tighten access to foreign currency, or introduce new controls. Each option carries costs.

What a 200-birr dollar could mean for households

The most visible effect would be higher import costs. Ethiopia depends on foreign currency for fuel, fertilizer, industrial inputs, medical supplies, machinery and many consumer goods.

When the birr weakens, importers need more local currency to buy the same amount of dollars. Those costs eventually move through transport, production and retail prices.

A weaker birr would also increase the local-currency burden of dollar-denominated debt. State-owned enterprises and public institutions with foreign liabilities would need more birr to service the same debt obligations, creating additional pressure on government finances.

The scale of inflationary pass-through would depend on global commodity prices, government tax and subsidy policy, domestic demand and the speed of depreciation. A move through 200 would therefore be economically important even if it occurred gradually.

The policy dilemma for the NBE

The National Bank of Ethiopia cannot maximize every objective at once. Defending the currency aggressively requires foreign reserves. Preserving reserves means allowing more exchange-rate movement. Tight currency controls can temporarily suppress the formal price but risk rebuilding a large parallel-market premium.

The government also has to maintain fiscal discipline while funding security operations and protecting households from higher living costs.

That is why a war shock would be particularly difficult under the current system. Ethiopia is attempting to deepen a market-based foreign-exchange regime at the same time that the economy remains structurally short of hard currency.

The real question is not whether 200 is guaranteed

The 200-birr threshold should not be treated as a forecast with a fixed date. Exchange rates depend on policy choices, export performance, remittances, reserve levels, external financing, global commodity prices and the duration and geography of any conflict.

But Ethiopia is entering this period from a very different starting point than it did before the 2024 float. The birr has already undergone a large repricing, and the remaining distance to 200 is relatively small in the parallel market.

A broad and sustained war could therefore turn a gradual currency adjustment into a faster confidence shock. The danger would come from the combination of higher defense-related dollar demand, lower export receipts, informal remittance diversion, speculative hoarding and reduced room for official intervention.

For Ethiopia, the question is no longer simply whether the birr will depreciate. It is whether the country can preserve confidence in a newly liberalized foreign-exchange system while absorbing another major political and economic shock.

Key takeaway