Ethiopia set to hold first dollar auction in decades to boost Birr

The National Bank of Ethiopia has announced in a statement dated August 6, 2024, that it will be conducting a Special Foreign Exchange Auction on August 7, 2024.

This comes eight days after it allowed the Birr (the National Currency of Ethiopia), to freely float after decades of rigid capital controls.

The auction aims to arrest the loss of value that the Birr has suffered, which has plunged by approximately 70 per cent over the past week.

Birr has lost approximately 70 per cent of its value against the dollar since the flotation was announced on July 29, with exchange rates varying widely in the fragmented market.

Ethiopia's currency plunge has raised alarm over rising import costs and inflation, adding pressure to an economy already reeling from war and drought. Wednesday's auction is a critical test as authorities rush to increase scarce dollar liquidity and stabilise the Birr, which is in freefall.

The statement further noted that the interested parties are invited to submit their bids to the Foreign Exchange Monitoring and Reserve Management Directorate (FEMRMD), at the National Bank of Ethiopia between 10 am and 12 pm on August 7, 2024, and shall include two the following; The volume of US dollars being requested, the offer price, expressed as Birr per USD at which a bank is willing to purchase the availed US dollars.

Successful bidders will be sold US dollars at the bid price they offered and no bank will be provided more than 20 per cent of the total funds made available at the auction.

Settlement is due on the same day and the weighted-average price will be announced by 3 pm.