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NBE Grants Licenses to Five Independent Foreign Exchange Bureaus

The National Bank of Ethiopia (NBE) has announced the licensing of five new Independent Foreign Exchange Bureaus under its recently issued Foreign Exchange Directive No. FXD/01/2024. The five licensed bureaus—Dugda Fidelity Investment PLC, Ethio Independent Foreign Exchange Bureau, Global Independent Foreign Exchange Bureau, Robust Independent Foreign Exchange Bureau, and Yoga Forex Bureau—are authorized to engage in the buying and selling of cash notes for major convertible currencies. This marks an important development for Ethiopia’s foreign exchange (forex) market and financial sector as a whole, with significant implications for foreign exchange stability, financial transparency, and the impending launch of the Ethiopian Securities Exchange.

Implications for the Financial Market

The granting of these licenses to independent forex bureaus is part of a broader liberalization strategy of Ethiopia's financial sector. By authorizing independent entities to operate in the forex space, NBE is promoting a more competitive and transparent market. With these bureaus focused on spot transactions (cash note buying and selling with immediate delivery), this development will increase the accessibility and convenience of foreign exchange services for both individual travelers and businesses.

As independent bureaus enter the market, the competition could lead to more favorable exchange rates for customers, ultimately benefiting both importers and exporters. This influx of players can further deepen the liquidity in the forex market, which has historically been constrained by limited access to foreign currency reserves. This move is also anticipated to provide more options for Ethiopians who need foreign exchange for travel and business purposes, as bureaus can sell up to $5,000 for personal travel and up to $10,000 for business trips, without the need for a customs declaration for up to $10,000 in purchases.

Foreign Exchange Stability

The introduction of these bureaus could help stabilize Ethiopia’s volatile forex market. By channeling more foreign currency into formal institutions, the central bank aims to mitigate the black-market trading that often leads to currency depreciation. With these licensed operators under strict NBE supervision, it will be easier to regulate forex trading activities, thus contributing to greater transparency and accountability. Moreover, the bureaus are required to display their exchange rates prominently and issue receipts, ensuring that customers are informed and protected.

This move can have long-term effects on the foreign exchange rate stability, particularly as the Ethiopian government continues to work toward addressing the country's foreign currency shortages. By expanding access through these independent players, the hope is that the overall demand for hard currency can be better managed, which could reduce the pressure on the birr and curb speculative practices.

Impact on the Ethiopian Securities Exchange

As Ethiopia prepares to launch its first stock market, the Ethiopian Securities Exchange (ESE), these forex bureaus may play an indirect yet critical role in supporting the functioning of the future exchange. With foreign investors expected to participate in the ESE, these bureaus can facilitate the conversion of currencies, making it easier for international participants to invest in Ethiopian stocks and bonds.

The establishment of a well-regulated and competitive forex market complements the expected introduction of securities trading. Stable and transparent forex operations will be essential in ensuring that the capital inflows necessary for stock market investments are managed efficiently. The forex bureaus can also boost investor confidence, particularly among international market participants, as they provide a formalized and reliable channel for currency exchange, minimizing the risks of unregulated, informal market practices.

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NBE Grants Licenses to Five Independent Foreign Exchange Bureaus

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