The Ethiopian government last week unveiled a new set of banknotes that are expected to help authorities combat cash hoarding, illegal trade, and illicit financial flows while boosting the liquidity of banks that are struggling to cope with the cash-based economy.
There are now “new Birr notes for 10, 50 & 100 denominations, with the introduction of a new Birr 200 note,” Prime Minister Abiy Ahmed said in a tweet. Banks have been asked to start immediately issuing new currency and Ethiopians given a three month-window to replace their old notes.
With its better design, security features, and quality of paper, the new currency will have more longevity and end the menace of counterfeiting, Abiy said. Forged banknotes have always posed serious threats to the Ethiopian economy, often hampering smooth transactions in the country.
In June, over 77,500 counterfeit Ethiopian currency were seized by Police officers, with the majority of them being fake 100 birr bills. That came after the National Intelligence and Security Service and the Addis Ababa Police Commission in a joint operation nabbed eight foreigners for allegedly printing fake currency notes last November.
The demonetization comes after repeated calls by Ethiopia’s Bankers Association, which contends that the trillions of birr circulating outside the banking system have worsened the liquidity problems commercial banks have faced this year in the wake of the coronavirus outbreak.
Inflationary pressures have also been a cause of worry, largely induced by the pandemic. Inflation in Ethiopia reached above 20 percent in August after the government increased the printing of currency to fund the budget deficit.
The country has spent as much as 3.7 billion birrs ($101.2 million) to print new currency according to Abiy. But experts say introducing new denominations is a step in the right direction in tackling currency corruption and other economic ills, in line with the Prime Minister’s stance.
“Introducing the changes in our currency notes was deemed necessary to salvage the country’s fractured economy,” Abiy said at a gathering of ministers, bank governors, and heads of the security agencies, explaining the rationale behind the country’s second demonetization in over two decades.
Ethiopia’s central bank had in August introduced limits on cash holdings and withdrawals, seeking to influence activity in the informal economy, which has a substantial share in the economy. A company or an individual can keep cash only up to 1.5 million birrs ($41,000) while cash withdrawal from banks should not exceed 100,000 birrs ($2,737).