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Changes to Ethiopian banknotes intended to fight corruption unexpectedly pose challenges
borkena
September 19, 2020
Last week, the government of Prime Minister Abiy Ahmed announced changes to banknotes for three denominations and the introduction of a new (and larger) denomination.
The purpose, as outlined by the government, was to fight corruption and control illicit trade in the country. A large reserve of cash outside the banking system and in the hands of individuals, some of whom are believed to have ties to counter-reform political forces, was one of the targets of the policy change. The monetary cost of introducing new banknotes was colossal. The government said it has made available 2.9 billion birr of the new money for which 3.7 billion birr was spent.
The government announced that old banknotes must be exchanged within three months and that people with reserves of more than 1.5 million birr outside the banking system would be confiscated. A new policy was introduced in August 2020 that requires people with more than the set amount of cash reserve to deposit it in banks.
There was another obstacle for those who hoarded a large cash reserve. They need to present ID when they bring cash to banks to change it. It means that the government, if implemented diligently, may have the opportunity to sift through large pools of questionable money.
The reaction to the policy change was yes, except that some politicians and activists said it was too late. For opposition political parties, including the Ethiopian Social Democratic Party, the change introduced will bring economic and political stability, state media reported on Friday.
Challenges for implementation
The purpose of the banknote changes, which is largely related to the fight against corruption, is apparently experiencing challenges. Law enforcement and security forces have the power to enforce the policy of confiscating more than 1.5 million birr of private reserves.
However, there are reports that the security forces are seizing cash below the declared amount, especially in the capital Addis Ababa, and do not report it to the relevant authorities.
The Governor of the National Bank of Ethiopia, Yinager Dessie, and the Ethiopian Finance Minister, Ahmed Shide, issued a press release on Friday. “There is confusion regarding the changes to the banknotes,” they said, in a way that they described the behavior of law enforcement agencies as something that emanated from “confusion.”
They said the police should not detain people who have less than 1.5 million Ethiopian birr. In fact, they noted that there are exceptions even to that rule. Businesses with high cash transactions, such as gas stations, are exempt from the above rule. The government, however, cautioned that such companies should not attempt to fraudulently deposit money from those who accumulated over the limit. To close the loophole, the government intends to verify the sales history of companies such as gas stations.
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