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The Ethiopian government’s decision to exchange banknotes and issue higher denomination banknotes would be of significant importance in curbing the rampant illicit money transfer and circulation of counterfeit money while facilitating transactions, according to a finance expert.
Prime Minister Abiy Ahmed announced yesterday that the existing 10.50 and 100 Birr notes will be replaced by new notes equipped with significant enhancements and security features. The country also earned a higher denomination, a 200 Birr note for the first time in its history.
The prime minister said that the new bills will curb the financing of illegal activities; corruption and smuggling. “The improved security features in the new banknotes will also stop producing counterfeits.” Noting that preparations to deal with illicit money transfers and counterfeiting have been finalized, he stressed that those who engage in such illegal activities will face serious legal action.
Several measures were taken to protect and grow the banking sector including lifting a previously mandatory 27 percent bond purchase policy, he said.
The prime minister also revealed that the country spent 3.7 billion Birr to print the new banknotes.
Speaking to The Ethiopian Herald, a business professor at Addis Ababa University, Mukemil Bedru said that the change in banknotes is taking due account of the fact that illicit money transfers reached an alarming rate in the country. Therefore, change is essential to manage illicit financing, thus contributing to the national economy.
The expert, who is also chairman of the board of directors of Hijra Bank (in formation), stated that the government should replace the existing banknotes in a short period of time keeping the country out of the liquidity crisis that could result from the limitations in the provision of the new printed money. . Although the country may face some liquidity shortage for a short period, the decision will notably bank the unbanked society, thus improving the circulation of money and expanding the liquidity base, as well as broadening the government’s tax base.
Regarding the retention of cash, Mukemil noted that only 36-38 percent of Ethiopian adults have access to the bank and a huge amount of money circulates outside the country’s financial system and is not regulated. “Once the decision has been made on the challenges encountered in the early stages, it will be of the utmost importance to inject huge amounts of money into the financial sector as long as the source is identifiable and traceable.”
In addition, he noted that the decision would also have the role of transforming Ethiopia’s large informal sector into a formal one and improving the government’s ability to collect taxes that in turn would expand public spending and investment in infrastructure projects.
Expressing his expectation of a 500 Birr note, Mukemil said that the government’s decision to issue a higher denomination note is crucial as the country has been in double-digit inflation for the past few years, requiring people to carry lots of cash to transact. . Larger denomination bills are important to facilitate transactions and reduce the cost of printing money.
“Illicit money transfers have been on the rise in recent years and the government’s measure is delayed,” he said, adding that the problem is serious and requires multiple interventions in addition to changing the bills. Enforcing and reviewing the cash withdrawal limit that was introduced to limit the amount of money that individuals and businesses allow to withdraw from banks plays a vital role in deterring illicit money transfers.
The expert highlighted that the improvement of digital payment platforms, including mobile and electronic banking services, allows the government to effectively monitor the circulation of money and increase its income. The same consideration is also needed to alert banks to provide attractive service to customers in a way that encourages customers to open bank accounts and use agency banking.
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Through the integrated implementation of the four interventions, the government will significantly reduce illicit financing and improve its revenues, he said.
Most of the printing work for the new banknotes is currently in the country within the NBE vault. The distribution and planning mechanism has been developed and will come into effect through the agencies concerned. Security plays a key component in the currency exchange process and the relevant authorities together with members of the community will enforce the secure implementation. A federal command post that includes National Defense, the NISS and the Federal Police will be established to oversee this process with the expectation that regional command posts will also be established.
Although Ethiopia has never had a symbol to represent its currency, a new symbol has been designed and will soon be released to symbolize the Birr, it became known.
