Ethiopia: incapacitate illegal traders and money launderers

10/04/2020 Business, Ethiopia



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Money serves as a medium of exchange for goods and services. It is a tool for accumulating wealth. The nation’s economy is based on cash and, according to studies, only those who make up 25 percent of the more than 100 million inhabitants have access to the Bank.

This shows that most of the economic activities go to the informal sector.

Therefore, money in circulation has a high probability of being outside the Bank, which in turn exacerbates illegal trade, tax evasion, criminal act, and political instability. These and other factors could have forced the government to change the currency, said Surafel Demelash, a professor in the economics department at the University of Virginia.

The government prints money and the National Bank lends the money to commercial banks. Banks also lend the money to investors with whom they buy inputs for their business activities. Employers pay their employees a salary.

The money lent with high volatility to the liquidation has been generating shortages of foreign exchange in the formal sector. Corruption and illegal businesses have proven it. Therefore, the government’s move to change the currency will shift the nation from a murky past to a promising future, Sirak Demelash said.

The shortage of paper money could lead society to barter that demonetizes the economy.

Although the government is mandated to print paper money, the amount of money should not exceed the products and services available on the market. Otherwise, inflation could occur.

The introduction of a new currency can generate public consensus because it addresses the problems that arise from illegal trade and money laundering, which impoverished the public.

On the other hand, it brings a change of economic power. In the economy, where crony capitalism prevails, the merger between corrupt politicians and billionaire businessmen creates a weak government that is unable to collect taxes because politics will be vulnerable to manipulation by individuals behind the curtain. Illegally accumulated and traded money hampers economic planning because the amount of money in circulation is unknown.

When the old currency reaches the banks due to the introduction of a new one, financial power also passes from the gangsters to the government. Your economic playing field shrinks.

As for Surafel, unlike fixed and portable properties such as land, houses and vehicles, money has a rapid rate of circulation and its slow return to the bank had created a high probability of liquidation. Once again, such a situation could threaten the security of the nation.

The length of time to exchange the old currency within a month for a small amount of money and 3 months for more than 1.5 million Birr can be taken as a positive step. With no option, the money hoarders go to the banks to ask for change because time is against them.

These days, hearing news about illegal money seizures in border cities is no longer uncommon. The action does not affect people who often leave and return to the country for various purposes; It hurts the illegals especially, especially those who hoard money in neighboring countries.

But the Governor of the Commercial Bank of Ethiopia, Abi Sano, has a different opinion regarding the duration of the exchange of the old currency for the new one. As for him, a month is too long. The extension could create a shortage of new currency in circulation.

Some argue that a three-month duration could give illegal traders a chance to buy more basic goods and food. This creates a shortage of basic products that exacerbates inflation.

But as for Surafel, the three-month duration is not as long as such to create havoc in the market and the commodity providers also know that receiving the old money is not safe for them. Obviously, they will do their job consciously.

The new directive of the Federal Document Ratification Agency stipulates that when the sale of movable and immovable property is carried out, unlike the previous time, the sale of property in cash is prohibited.

Transfer of ownership is approved only when the account is transferred through a banking system. This again restricts illegal traders from exchanging their illegally earned money.

Money is not an end in itself, it is a means of exchanging wealth in the form of goods, properties and services and when a new currency is introduced, the old ones, unless they are replaced, will have no value.

It can be said that the new currency is the beginning of a new economic era that avoids the traps created in the past. It also facilitates the electronic transaction system and brings changes of attitude.

Our knowledge, institutions and service providers, production companies are true sources of wealth. But unless exchanged, wealth becomes wasted capital and will depreciate. Hoarding money is also an unhealthy practice and should circulate and serve the economy like blood vessels.