National Bank of Ethiopia (NBE) has passed a new rule for banks regarding approving of letters of credit (LC). The new directive dictates banks should use the given price of items when allocating hard currency. In other words, the LC amount should correspond to the actual price of the to be imported items.

As it stands, importers are not under obligation to submit the price of the imported items at exporting countries market. Thus importers would ask for hard currency for some amount at banks and fill the rest from different sources; mainly from parallel sources or black markets.

The new rule by the central bank obliges banks to follow Ethiopian Revenue and Customs Authority (ERCA) price rate for imported items that ERCA is using for tax and duty calculation.

It is the acute hard currency shortage that forced NBE to come up with new rules as to the way hard currency is managed at the banks. The new directive is said to cut the black market and other illicit systems. It is hoped that the directive will force imported to use banks solely for their import.

The central bank’s governor, Teklewold Atnafu, in the near past had acknowledged the issue had not been studied but importers use finance from outside sources, who collect hard currency secured from illegal money transfers. We are undertaking a study to stop these kinds of transactions,” he told parliament members. “We will follow the decision of the government,” he added.

Source: Capital