Upstart Banks Pay Up for Dollars as Veterans Watch, CBE Sits Tight

Jul 20 , 2025.

It is unusual to see the BrewedBuck gain even a fraction of ground against the GreenBuck. Yet, last week, the Birr’s steady slide briefly paused. On Saturday, the National Bank of Ethiopia (NBE) posted slightly lower official buying quotes than the previous week, while the state-owned Commercial Bank of Ethiopia (CBE) left its posted rate unchanged at 131.5 Br to the dollar, a level it has maintained for two months.

The decision not to move in step with the market has set off debate within banking circles over whether CBE is defending its own thin foreign reserve position or is being used, implicitly or otherwise, by policymakers as a stabilising anchor. Many in the industry suspect the latter.

The International Monetary Fund (IMF) last week sharpened that suspicion, arguing that CBE’s near 50pc share of the banking system “creates additional distortions.” Adds the Fund’s report: “Its historical role as a policy bank with negative foreign currency positions reduces incentives for competitive foreign exchange mobilisation.”

On July 17, the Central Bank’s dealer screens began showing zero spread quotes, an oddity in a market that usually observes a small gap between buy and sell prices. Traders took it as a signal of an internal policy switch. If that is the case, it failed to halt a gentle depreciation. Over the trading week, the Birr lost about 0.15pc, a controlled nudge rather than a rout. The average buying rate across 26 commercial banks edged up from roughly 134.90 Br to 135.10 Br, while the average selling rate moved from about 137.50 Br to 137.70 Br.

Competition for scarce dollars remains fierce.

OromiaBank topped the bidding league tables, lifting its buying rate to 137.59 Br on July 19 from 137.30 Br five days earlier. It also posted the highest selling quote, at 140.34 Br, a premium its traders are willing to pay to lock in hard currency. Fourth-generation lenders leaned in as well. Amhara Bank bought at 135.68 Br, Gadaa at 135.08, Hijra at 135.01, and ZamZam at 135.19, each crossing the 135 Br line that longer-established private banks, such as Awash, Abyssinia, Dashen, Wegagen, and Zemen, still avoid.

The restraint of these more established banks has been unveiled through tighter balance sheet limits or a more conservative view of where the currency is heading.

Price dispersion is widening. Oromia Bank's 140.34Br selling quote was almost six Birr above the lowest in the market, CBE’s 134.13 Br, exposing the gulf in risk appetite and funding costs between financial institutions. The NBE’s own window, meanwhile, saw its spread collapse from 0.10pc on July 14 to zero three days later, a quirk that market analysts read as a deliberate signal from policymakers.

A year has passed since Governor Mamo Mihretu abandoned the fixed peg and ushered in a managed float meant to fuse the fragmented foreign exchange market into a single and transparent system. In practice, stability remains elusive. The premium on the parallel market, which the authorities briefly crushed with tough enforcement in late 2023, rewidened to roughly 17pc by May this year. Back in November 2023, that gap had blown out to more than 100pc, betraying a severe drain on reserves and evaporating investor confidence.

The late July 2024 shift briefly narrowed the chasm; by September, the parallel rate was nearly level with the official quote, but the respite proved short-lived. By April of this year, the spread had returned, even though reserves, boosted by donor inflows and a pickup in exports, had climbed to around four billion dollars, enough to meet about two months of imports.

The IMF pins the recurring stress on three structural flaws.

While broad rationing has been scrapped, transactions remain costly and opaque. Importers should still surrender a 2.5pc commission to the Central Bank and navigate cumbersome paperwork, nudging many toward the street market. Draconian capital controls lock up an estimated 70pc to 80pc of cross-border financial flows, in sharp contrast to Egypt and Nigeria, two countries that have edged toward freer regimes. Confidence in the Brewed Buck is eroded by double-digit inflation and artificially low deposit rates, which deter savers from holding local assets.

“The absence of hedging tools makes importers wary of currency fluctuations, causing them to revert to unofficial markets,” the IMF said.

Its prescription is sweeping. Scrap the remaining current account restrictions, allow for favourable real interest rates, phase in capital-account liberalisation, and upgrade payment infrastructure. Letting foreign banks in, the IMF argues, would dilute incumbents’ dominance and deepen the market.

Whether policymakers can deliver reforms fast enough is an open question. Governor Mamo and his team should weigh economic logic against political and security risks that fuel capital flight. He also needs to decide whether it will restart the bi-monthly foreign-exchange auctions he paused this month or continue to let banks set their own rates.

According to the IMF, over the longer run, the credibility of the managed float will depend on the Central Bank's willingness to swallow short-term pain — higher interest rates, a leaner CBE balance sheet and greater transparency — in exchange for a more resilient currency market.

PUBLISHED ON Jul 20,2025 [ VOL 26 , NO 1316]