By Fasika Tadesse and Simon Marks

Surging inflation and a shortage of hard currency in Ethiopia are driving up the price of US dollars on the black market and spurring increased use of cryptocurrencies.

The birr traded at 82 per dollar on the informal market on June 6, down 26% since the start of last month, according to two traders in the capital, Addis Ababa, who asked not to be identified for fear of reprisals by the authorities. The Ethiopian currency’s official rate is currently 52 birr per dollar. 

The central bank this week said it’s detected a rise in the use of cryptocurrencies and other virtual assets, some of which “are being used for illicit financial flows and money laundering.” 

A shift away from formal currency trading channels undermines the National Bank of Ethiopia’s “ability to conduct monetary policy and retain its traditionally tight control of the foreign-exchange market,” said Connor Vasey, an associate at Eurasia Group. “It would also worsen dollar illiquidity issues, which have always been pervasive,” because the government has tightly controlled the market, he said. 

Consumer prices rose an annual 37% in April, mainly driven by soaring food and fuel costs, latest available data from the Central Statistics Agency show, and costs have continued to rise as Russia’s war with Ukraine grinds on. The government has made spending cuts to try to counter price pressures and reduced foreign-exchange allocations to the private sector, forcing increased numbers of importers to tap the informal market. 

A civil war that broke out in late 2020 and cost Ethiopia donor support and its duty-free access to US markets has added to pressure on the currency, as have supply-chain disruptions stemming from the coronavirus pandemic and a devastating drought.

Source: Bloomberg