The National Bank of Ethiopia has introduced several regulatory measures as part of a crackdown on black market currency trading
Reports out this week from Ethiopia indicate that Ethiopia is taking tougher measures against black market currency exchange.
The problem seems a bit complicated because it involves a number of actors. Even senior officials working in banks are linked to the network of illegal money transfer services.
Earlier this week, Ethiopia announced that it had closed the bank accounts of around 392 people allegedly involved in black market currency trading and illegal money transfers from abroad.
Trends have been observed that account holders withdraw money from the Bank up to 80 times a week without any business transactions. The observed pattern is the transfer of money between different account holders.
The exchange rate was at one point last week as high as double the exchange rate at banks. US$1 was worth up to 120 Ethiopian Birr. In banks, it sold for less than 53 birr.
The development would have aggravated price inflation in the country.
The suspects’ accounts are being investigated and the Department of Justice is involved, based on the reporter’s report.
Government regulatory response
In an effort to reverse what has now become a widespread foreign exchange black market (something that results in the government losing considerable revenue in addition to worsening inflation), the National Bank of Ethiopia introduced a series of regulatory measures.
The amount of cash assets for individuals (non-banks) is now 100,000 Ethiopian birrs and 200,000 for businesses. With this, the National Bank is introducing financial incentives for those who notify designated law enforcement whenever there are excess assets and foreign currency holdings.
Anonymous informants could get up to 15% of the cash value seized once the court rules the detention was unlawful. Besides foreign currency, the government is cracking down on what it calls the illegal trade in gold and its acquisition in unauthorized quantities.
The government also imposes restrictions on the importation of certain goods – the absence of which would not cause harm at the national level.
It plans to reactivate the procedures by which importers under the Franco-Valuta agreement will produce documents to verify the origin of their foreign currency assets.
It has been practiced in banking in the past and has been disabled in what is said to be an effort to minimize red tape for members of business communities.
Why is the government reintroducing the system? Because the government says there are business people buying foreign currency on the black market and taking the money out of the country under the guise of Franco-Valuta business activity.
The volume of imports to Ethiopia is said to exceed $18 billion.
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