Ethiopia: Panacea for Economic Fracture

As of last Wednesday, four denomination notes of the new Birr have begun circulating in the bloodstreams of the Ethiopian economy. Three of them are replacements to the existing currency denominations while the remaining one is a new and the largest denomination, the 200 Birr note.

We have been expecting the news of currency change for a long time, almost soon after the onset of the reform 2 years ago. Even a business newspaper had published an unconfirmed report on the currency change as a rumor a few months ago. Nevertheless, the news came at the least expected time when we were still in the mood of the New Year celebration, just on the fourth day of the new Ethiopian year.

Various relevant professional organizations have been recommending the change. This huge undertaking by the government would undoubtedly have positive economic well as political implications and has been welcomed by several independent economic analysts as a well-timed and indispensable project. Some experts even hailed the move as one of the most significant and bold measures made so far by the incumbent leadership.

Quartz Africa, an online news source has quoted an economist as saying: "Even though changing currency notes is costly and expensive, it is very important to the economy. Especially with the inflationary pressure haunting the country for long and its adverse impact on purchasing power, introducing new denomination is a step in the right direction."

The multibillion-dollar project which has been done secretly as project X until last Monday is expected to be concluded in the coming 3 months. It aims to change the old currency circulating in the economy with the new ones, excluding the huge chunk of money beyond the country's borders in the neighboring countries which, officials say, is mainly being used to run the illegal cross border trading and other criminal acts. Literature suggests that the Birr, Ethiopia's banknote, is known to be the second most used currency in Africa.

The governor of the central bank has reportedly said last week that it is the fourth time since the country introduced a major change to its currency notes with the first Ethiopian banknote introduced back in 1915. The change this time around is done with unprecedented stringent measures and regulatory protocols. The Premier on the day of revealing the ongoing currency change project said that the task was not a mere change currency note; rather it is a decisive task of rejuvenating the fractured economy back to full health and robustness.

A reputed economist has paraphrased the premier's explanation on the ultimate purpose of the currency change as saying: "the country's economy has been hemorrhaging for decades due to such illegal activities as money counterfeiting and mushrooming black currency markets, both of which have propelled inflation to go through the roof, as well as illicit cross-border trading, decrease in remittances, and illegal money flows. This has to be stopped, and doing that necessitates the proper implementation of the currency change."

Therefore, it would not be surprising to hear the Premier speaking with an unusually stern voice to bank executives last week warning them what is at stake in the mission of changing currency notes, and the cost of failures in carrying out their responsibilities in its implementation. "We have installed a rigorous monitoring system both physically and virtually. If any bank ever found to have been involved in activities related to counterfeit money, then it will cease to be a bank by the next morning," he warned

So with the implementation of the currency notes change, the government expects desirable outcomes including, among others the return of a huge amount of money circulating in the economy outside the banking system, which would in turn resolve the liquidity issues the banking sector currently facing. The Ethiopian Bankers Association has reported a few months ago that 113 billion Br is circulating outside of the banking system. "If there is that much amount of money circulating outside the banking system, then it means that there is a danger," said a chief executive of a private bank.

There are a host of issues that should be tackled to ensure the success of the currency note change. One is the strong and tight monitoring and control of illegal activities that potentially jeopardize the currency change process. Appropriate legal and working procedures and directives should be quickly put in place to step ahead of the criminals and preempt their activities. For instance the Document Authentication and Registration Authority last Thursday has announced it would provide its services to purchase and credit agreements whose money transactions are done through bank account transfers, not cash transactions. The Authority has also suspended authenticating property gift agreements.

The other area of focus is the strengthening of digitization of payment systems and widening the digital literacy of the populace to ensure the transformation of the economy from cash-based to digital. Banks should make their digital system more reliable, accessible, secure, and user friendly. In particular, business transactions that involve a huge sum of money should be conducted using only electronic payment systems like POS machines or account transfers.

Before I conclude, I would like to mention some of the views of the strangers I had a small talk with regarding the design of the new currency notes. The first one is a man in his prime, around 35 I met him at a bank congested with customers." Where is the picture of GERD, or the picture of Abay [Nile]. The Sudanese have the Nile in their banknote, why not us? Is there any other thing that would represent this generation better than GERD?"

The young lady I met at a supermarket said: "All the new currency notes are so fabulous. Especially the 200 note, not because it is the largest denomination. Of course, it makes my wallet compact, but the main thing is it carries a white dove image. Peace is the priority of our time more than anything else."

I met another gentleman studying the advanced security features of the new currencies sitting in a minibus. He is a well-groomed man in his mid-fifties. "well, all notes are well crafted, meticulously designed. They will surely disappoint the counterfeiters. I have witnessed three currency note changes. Of all Ethiopian currency notes, I like the design of the 100 Birr note issued in 1977. The picture of a patriot in warrior costumes. It evokes Ethiopia's unique status as an African state whose gallant citizens never bowed and succumbed to colonizers. I have kept one authentic note hat denomination at home as a souvenir. I will not sell it even for 1 million dollars."

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