The sky was gloomy; it was a cloudy afternoon last week. The typical August weather of fog and chill was reflected in the mood of the city residents, such as Shewaminale Mekonnen, the chief financial officer of the East African Holdings Group. He was in a rush to leave office, perhaps contemplating about the weather of the day. But before he could venture out for a good lunch, he had to do one more thing - send an important email.

News popped up on his Telegram account, one of the main platforms people use these days to receive breaking news. It was about the instruction regulatory authorities at the central bank had made to the heads of the commercial banks operating in the country. They were told to freeze asset-based collateral lending until further notice.

There must have been some mistake, Shewaminale had thought, sitting in awe and silence in his 28sqm office inside a building in the Sarbet area. Either the newspeople failed to grasp the essence of the instruction, or, he was convinced, it was a baseless rumour. His colleagues called. Friends followed. It was for real; banks are not to provide the economy with fresh loans, and they would suspend those already approved to be disbursed.

The company he works for was not to access 70 million Br in loans borrowed from a private bank to buy trucks for daily operations. Shewaminale realised how dire the situation was when the bank's loan officers informed him that his company could not process a pre-shipment loan, an important facility to buy commodities from local suppliers and export abroad.

“This will definitely disrupt the operations of our company," said the senior executive overseeing the financial operations of a conglomerate with 17 subsidiaries from agriculture to manufacturing and from trade to real estate, with five billion Birr in annual turnover. "Its repercussion won’t be light."

For many within the financial sector and in the broader economy, the authorities' decision to freeze loans came out of nowhere. It was communicated to the top executives of the banks on Thursday afternoon through text messaging. Such a consequential decision by the National Bank of Ethiopia (NBE) has yet to be delivered to the banks in the formality the situation calls for. However, in the absence of an official explanation, speculations of its motive abound.

Banking industry insiders see the measure by the central bank as a desperate move to hold back the run the Birr has against major currencies, particularly of the Dollar. The Birr is fast losing ground both in the formal and parallel markets. The exchange market is more volatile than ever before due to a combination of factors. In a tightly regulated exchange market, individuals and businesses offer large sums of money to buy foreign currencies, a fact well understood by policymakers and regulators at the central bank.

In the official market, the Birr has depreciated against the dollar by almost 40pc over the past three years and exchanged for 45.5 Br last week. The pace of the erosion in the parallel market is alarming to those who keep watch on the economy. Hovering at 70 Br against the Dollar, the gap with the official exchange market has never been so wide. It is no different from other oft-traded currencies. The Pound Sterling reached a record-high of 90 Br, while 10 Br less is offered to exchange for the Euro.

Regulators at the central bank blame hidden hands active in undermining the broader economy. Fikadu Digafe, vice governor of the central bank and its chief economist, sounded certain of this.

“It's the outcome of economic sabotage,” the Vice Governor told Fortune, referring to the sudden spike of the 55pc gap witnessed between the official and the parallel markets, a jump of 25 percentage points in just two weeks.

Against the backdrop of this surge in the value of foreign currencies is a series of policy and administrative measures the authorities have taken since Prime Minister Abiy Ahmed (PhD) took the helm in 2018. The Prime Minister made an arguably haphazard statement in public cautioning individuals with dollars in their possessions to exchange it with the banks before its market value drops. He warned the government had a high stock of the Dollar and that those with the Dollar would have fetched less than what they had bought for if they were to wait longer. A respite followed in the downward spiral of the Birr, before it spiked again.

A major crackdown on the underground market followed, with the demonetisation of the Birr and a series of directives by the central bank on the retention of the Dollar by those with foreign currency accounts, measures all in vain.

Though a stubborn parallel market is a reality in an economy characterised by a forex crunch and a mismatch between demand and supply, its vibrant place is as much determined by the government's monetary policy.

A managed floating exchange rate regime, where the central bank pegs daily rates, has been in place since the change of government in the early 1990s. With annual depreciation of five percent, the Birr had enjoyed a stable journey, compared to currencies of other sub-Saharan economies. Concern and pressure from international financial institutions that the Birr was overvalued were behind policymakers' interventions in devaluing it seven times in the course of a decade, by as much as 100pc.

The rationale was to help the national economy become competitive in the global market. They sought to promote exporters, though the earnings from the global market remained stagnant at around three billion dollars. In an economy besieged by structural trappings of productivity and competitiveness, where the balance of payments always show an average deficit of over 10 billion dollars, the outcome of devaluation by the stroke of pens was inflationary pressure.

Alemayehu Geda, a professor of economics at Addis Ababa University, remains a vocal voice cautioning policymakers about the folly in doing the same but expecting different results.

His major research conducted a decade ago following a 20pc devaluation showed there was little to show for it encouraging exports but resulted in inflation. His findings were a direct challenge to policy orthodoxy by the World Bank, whose researchers claim there was no proof linking devaluation with inflation.

Prime Minister Abiy had to make the difficult decision, too. His administration was confronted with the options of devaluing the Birr or making way for a market-led exchange market governed by demand and supply to prevail. He chose the latter.

A policy move welcomed by the IMF and the World Bank, the fast depreciation of the Birr in the official exchange market, reaching as high as 25pc annually, began. It was a component of the highly acclaimed Homegrown Economic Reform Agenda of 2019. Under this blueprint, the macroeconomic committee chaired by the Prime Minister had hoped exported goods become competitive while the share of imports to the GDP declines.

The highest export revenues followed, hitting 3.6 billion dollars last year, and imports declined by eight percent to around 13 billion dollars. But considering the inflationary pressure, largely caused by a spike in the prices of imported goods, the question was whether this was an acceptable trade-off.

The answer, for experts such as Kinfemichael Yibkaw, is on the contrary.

"Its costs outweigh the benefits," says Kinfemichael, who has been working in the financial sector for over two decades.

He observed the depreciation of the Birr driving inflation, reaching 26pc last month, the highest in a decade.

Inflationary pressure is hardly the only consequence of the depreciation of the Birr. The erosion of trust in the value of the Birr as a dependable instrument of exchange is another pressing concern. Immediately after the devaluation of the Birr by 18pc in 2010, real estate companies had moved into pegging their prices in dollars, demanding their buyers to pay instalments at the exchange rate of the day of the transactions. It has become a norm since.

The failing trust in Birr is particularly true for the wealthier segment of society, whose members allegedly hoard local currency to buy forex to deposit in foreign banks, especially when faced with economic uncertainty such as now, when war is raging in different parts of the country.

What has been happening over the past few weeks is the manifestation of such a reality, according to Fikadu, though he believes it was intentionally premeditated by groups with interest to "sabotage the economy." It is a sentiment receiving wide currency among the officials, including Eyob Tekalign (PhD), a state minister for Finance.