Ethiopia: The Proper Period to Measure the Impact of the Currency Change On the Economy

Ethiopia has recently unveiled new currency notes to replace the existing 10, 50 and 100 Birr notes and the new 200 Birr note. The changed and newly introduced notes are being distributed. It is hoped that the changes will have many economic, social and political benefits. The current fiscal year is also expected to see a significant change in the country's economy.

President Sahlework Zewde recently addressed the opening session of the 5th House of Peoples' Representatives and the House of Federation. Opening Remarks at the 1st Annual Joint Meeting of the 6th working year, which explored the major challenges of 2019/20 and the major priorities of government in 2020/21, addressed a wide range of economic issues. One of these is the change in money. As she explained in her speech on the currency change: It will be a year in which the change in the monetary system will be measured by the change in the economy.

What, then, is the role of money in the economy? Who is expected what to make the money change bring a difference in the economy? According to Abneh Samuel, a lecturer in economics at Wachamo University, and Abis Getachew, an economic affairs' researcher at the Ethiopian Institute for Policy Studies, there are many ways to measure whether or not the change in the money will affect the economy.

According to Abneh Samuel, a lecturer of economics at Wachamo University, the main reason for the change is that billions of money is out of the bank. The new money change is expected to make a difference in the economy when large sums of money from outside the banks are returned to the government system.

Explaining that the return of money to the government system will have many benefits at the country level, he said adding that for example, it is important to return money to the government system, especially for future policies.

Although the positive effects of the change in the economy will be evident in the coming months, there are still many positive changes that are taking place. He noted that large sums of money are being deposited in banks and that this is a sign that more bank accounts are being opened.

As per the lecturer's explanation, deposits in banks are rising. As money flows into the banks, the financial problems facing the banks are being addressed. This means that the chances of getting legal money increase. This has special significance for both the government and the private sector. In particular, the government has a great opportunity to borrow from banks to implement large-scale projects.

"When Banks can accrue a lot of money, it will speed up investment and give investors the opportunity to do as much as they want," he said. It will help stimulate investment in general. He further explained that investment stimulus will play an irreplaceable role in the growth of national production and job creation.

He explained that when money is out of the government's system, it is difficult for the government to implement its policies. Adding he said that when money is in the system of government and that the government supports the implementation of its policies. The government has developed the capability to lead the economic sector and implement policy; it would no longer be difficult to properly implement policies issued by government, he said.

As per the explanation of lecturer Abneh, money changers are said to have made a difference in the economy when the situation changes in terms of tax collection. Money change modifies a lot in terms of taxes. The existing tax evasion will be declining. This supports the fiscal policy.

Abis Getachew, a Researcher of Economic Affairs at the Institute for Policy Studies, on his part said that the 2020/21 budget year, as of the president, is a measuring period of the impact on the economy. When saying so, she is explaining that conflicts with illegally accumulated money would be reduced and that it would be a good thing for peace and security.

"In order to measure impact of the Birr notes' change in the economy, it is important to know the main objectives of money exchange," he said. One of the objectives is to regulate and legalize money laundering, and the second is to make monetary policy more effective, he further explained.

He said the change will bring economic transformation, as it will reduce the economic and political irregularities by canceling illegally obtained money by individuals in order to prevent the money from being used for illegal activities.

The main purpose of a country's monetary policy is to control the amount of money circulating in the economy. It is important to reduce the amount of money circulating in the economy when necessary. Monetary policy in Ethiopia is not effective right now. The National Bank of Ethiopia has tried to implement a monetary policy but has been unable to do so, he said.

According to Abis, the National Bank's monetary policy can be applied to the money in the banks. In Ethiopia, however, about 130 billion Birr is outside the bank. And the money in the banks is very small. The new currency has been introduced as a result of the efforts to collect the money circulating in the market was unsuccessful.

He said the change in the currency will allow the money outside the bank to be returned to the bank and the country will have a good monetary policy. This is one way to measure the impact of the change on the economy.

Abis further explained that although it has been several days since the money exchange began, money is not coming to the bank as NBE expected. This could happen for two reasons. People who have money in their possession may be misusing it in various ways to avoid accountability. Otherwise, there is money outside the bank that is supposed to be in the economy but not in the economy.

In fact, if those who have money are misappropriating the money to avoid being held accountable, it will not be a problem as the money will no longer be used for illegal purposes, he said. However, he explained that it would not be good if money was changed because of misinformation that there was much money in the hands of individuals.

As per the explanation of Abneh, it is one thing to change money for real transformation in the economy. But changing the money solely is not enough. It is the actions that take place after the currency is changed that make the change effective. Policies effective from the date of the change may or may not make the change effective. Thus, the measures taken may or may not make the change successful.

He explained that the money can be said to be effective if the government can encourage investment and savings as well as start large projects with the money raised from the market. The government must encourage private investment in order for the change to achieve its intended goals.

He said that if investment and savings can be encouraged, if big projects can be implemented and fiscal policy can be integrated with monetary policy, then monetary change can bring about economic change. If these things are not done, the change of Birr alone will not benefit the country by itself. It can even lead to loss since it costs a lot of money to print the notes.

Works that need to be done side by side following the monetary change must be done. It must be done properly to increase production and productivity; build institutional capacity; and replace imported products. "If these are done, our economy can be improved to some extent," he said.

Abis, for his part, added that many people in the country lack awareness. There is a huge gap regarding the monetary change and the new banking system. Awareness raising needs to be done in order for the currency change to have the desired effect on the economy. Banks and the media have a great responsibility to raise awareness.

The change cannot be achieved by the government's efforts alone. Everyone must do their part to ensure a healthy distribution of the money. When people see illegal money laundering, they should do their part by reporting to the concerned bodies, he suggested.

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