My Opinion | Jul 02,2022
Last week, the banking industry showed unusual uniformity in its posted foreign exchange rates. Most banks maintained a tight band and refrained from breaking what appeared to be an unofficial ceiling of around 125 Br to the DollaDollarbuying rates. Yet a handful of outliers—Goh Betoch, Gadaa, Enat banks, and Zam Zam Bank—stepped slightly outside these tacit boundaries.
Between December 9 and December 14, 2024, the average buying rate across the industry neared 124.5 Br, while the selling rate settled around 126.8 Br. This narrow range was more than a statistical coincidence. The financial sector was under regulatory scrutiny and eager to avoid unwanted attention. Despite these pressures, Goh Betoch Bank consistently pushed the envelope with some of the highest postings recorded last week. Its buying rate climbed as high as 124.87 Br, and its selling rate reached 127.36 Br, an aggressive posture in attracting scarce hard currency.
By offering relatively generous terms, Goh Betoch's executives may have sought to meet heightened demand for imports or to manage external obligations, a wager that could pay off if they secure foreign exchange at a time when the domestic currency keeps slipping.
On the opposite end of the scale, Gadaa and Enat banks displayed some of the lowest postings, with Gadaa’s buying rate dipping to 124.685 Br and Enat’s selling rate at about 127.261 Br. Though not dramatically below the market average, these lower rates offered subtle signals that these banks may focus on controlling their currency exposure and maintaining liquidity.
However, Zam Zam Bank followed a slightly different script. On multiple days, it posted the highest buying rate of 124.992 Br, paired with selling rates edging toward 127.49 Br. This manoeuvre appeared to stake out a competitive claim in a subtly policed marketplace. Yet by flirting with rates near or above what seemed an unofficial boundary, Zam Zam opened itself to heightened risk should the Birr weaken further.
The Central Bank took a markedly different tack. Its posted buying and selling rates consistently lagged behind the industry average. Buying rates remained around 124.43 Br, while selling rates varied between 125.24 and 126.29 Br. Unlike most commercial banks maintaining a uniform two percent spread, the Central Bank's margin dipped as low as 0.66pc. These narrower spreads likely served as a signal to the market, hinting that the Central Bank wants to keep volatility in check. Its presence as a steadier counterparty may be intended to discourage reckless rate-setting among private banks, ward off speculative behaviour, and preserve a measure of order as the Brewed Buck edges downward.
The industry-wide reluctance to cross the 125 Br threshold for buying — Zam Zam being a notable exception — reveals an unspoken understanding among banks. While not a formal agreement, this common practice could tell that the banks have internalised certain regulatory expectations and understand the reputational risk of playing too close to the fire. Such informal coordination has long been part of the thin forex market, operating as an invisible line that, if crossed, could send a damaging signal about the currency’s future.
Yet such uniformity stifles genuine competition, raising questions about the extent to which the market is truly free to discover a fair value for the Birr.
The state-owned lender, the Commercial Bank of Ethiopia (CBE), counteracted private banks' manoeuvring. Its rates settled firmly at the lower end—buying at 122.599 Br and selling at 125.05 Br—reinforcing its position as a stabilising force. The CBE’s position showed the Bank’s traditional role as a market anchor, helping to maintain a semblance of calm even as the broader economic picture darkened.
The Brewed Buck's steady slide over the previous few weeks is only a snapshot of a longer, more troubling downward march.
Eight years ago, in 2015/16, the Birr traded at around 21.11 Br to the dollar, which now seems distant history. By 2023/24, it was near 54.59 Br, and since a loosening of foreign exchange controls in July this year, the currency’s weighted average had tumbled to about 125 Br. The steady depreciation, where Birr's value was eroded by 495pc in eight years, mirrors the chronic strains on the economy: foreign exchange reserves under pressure, a stubborn trade deficit, and inflation that continues to gnaw at consumer confidence.
Annual inflation, especially in food prices, peaked around 33.8pc in 2022/23, undercutting households’ purchasing power and darkening the mood on the streets. Negative real interest rates offer little incentive to hold savings in Birr, prompting individuals and businesses to park their wealth in anything likely to hold value better than the Brewed Buck.
Policymakers have long championed the idea of an export-led recovery, citing coffee, gold, and commodities like khat as potential bright spots. Yet the promised transformation has yet to materialise, leaving the country reliant on imports that far outstrip exports. The trade deficit soared to about 14.47 billion dollars in 2015/16 and reached above the 12 billion dollar mark in recent projections. Diminishing reserves and persistent imbalances have put the Central Bank on the defensive, with little demonstrated firepower, complicating efforts to stabilise the currency.
Recent reforms have included allowing the Birr to float, but this has not stemmed the slide. Without diversified exports to take advantage of the weaker currency, the depreciation offers little competitive boost, while uncertainty continues to weigh on investment decisions. The state, once the main engine of growth, has pulled back, forcing the private sector to shoulder more responsibility. The modest uptick in nominal GDP does little to mask the underlying weakness. Businesses struggle with distorted incentives, reduced public spending, and scant foreign capital inflows, all while inflation chips away at their margins.
Today, the Brewed Buck is a currency caught in a tightening vise of persistent loss of value, persistent inflation, and policy levers that fail to provide relief.
For now, the market remains uneasy. Banks, prodded by regulations and wary of sudden moves, cling to narrow bands and unspoken benchmarks. A few outliers push the boundaries, hoping to secure a competitive advantage or hedge against an uncertain future. The Central Bank tries to calm the waters through narrower spreads and quiet guidance. Households and businesses calculate their positions with growing anxiety, keeping one eye on the dollar signs and another on a currency that offers few signs of regaining stability.
The Birr’s value, marked by depreciation, cautious manoeuvring, and latent tensions, is a reminder that while tacit agreements may hold a fragile line, the forces shaping Birr run deep and wide, well beyond the daily posted rates.
PUBLISHED ON
Dec 15,2024 [ VOL
25 , NO
1285]
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