According to the National Bank of Ethiopia Establishment (as Amended) Proclamation No. 591/2008 (herein after the Proclamation), the National Bank of Ethiopia, which is accountable to the Prime Minister, is the major government organ that regulates foreign exchange transactions in Ethiopia. The mandates of the National Bank of Ethiopia in relation to foreign exchange includes,

1. to formulate and implement exchange rate policy;
2. to manage and administer the international reserves of Ethiopia. The reserve is managed to cover payments of imports, payment of foreign debt commitments (such as export) and payments for basic services (Article 19 of the Proclamation);
3. to set limits on gold and silver bullion and foreign exchange assets which banks and authorized dealers can hold;
4. to set limits on the net foreign exchange position and on the terms and the amount of external indebtedness of banks and other financial institutions;
5. to accept deposits of any kind from foreign sources;
6. to act as banker, fiscal agent and financial advisor to the Government;
7. to take such steps to establish, modernize, conduct, monitor, regulate and supervise payment, clearing and settlement systems;
8. to  exercise such other powers and functions to execute its purposes as central banks customarily perform; an
9. to monitor foreign exchange transactions of banks, insurance companies and other financial institutions through on-site inspection and off-site surveillance.

Based on its power to issue directives the NBE has enacted Directive No. FXD/01/2024 on the regulation of foreign exchange (hereafter the Directive). The directive determine the conditions, limitations and circumstances under which a person/entity can possess and utilize foreign currency or instruments of payment pertaining to foreign exchange. Moreover, the directives regulate the terms and conditions for transfer of foreign currency to and from Ethiopia especially in relation to export and import. 

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Here are some highlights of the Regulation of Foreign Exchange (the Proclamation and the Directive)

Definition of Foreign Exchange

Foreign exchange means any foreign currency (any currency other than the Ethiopian legal tender); cheques, bills of exchange, promissory notes, drafts, securities, and other negotiable instruments, expressed in foreign currency; and bank balances in account held in foreign currency or assets in the form of foreign account crediting or set-off arrangements, expressed or payable in foreign currencies provided they are acceptable by the National Bank.

Determination of Foreign Exchange Trade

(Article 5 of the Directive)

Banks and authorized dealers can now determine exchange rates for buying and selling foreign currencies through open market negotiations with clients and each other. To monitor market trends, banks are required to submit daily exchange rate data to the National Bank of Ethiopia (NBE) in a standardized format.

The NBE calculates and publishes an Indicative Daily Exchange Rate based on these reports. This rate serves as a benchmark for accounting purposes but does not dictate transaction prices. Banks and dealers maintain the freedom to set their own exchange rates, fostering competition within the foreign exchange market.

Who can engage in foreign exchange transactions?

A foreign exchange transaction means:

a. the transfer, borrowing, lending, assignment, exchange, purchase, sale, receipt, payment or crediting of foreign exchange; and

b. the conclusion of any contract, agreement, arrangement or understanding, as a result of which any foreign exchange is transferred, borrowed, lent, assigned, exchanged, purchased, sold, received, paid or credited within or outside Ethiopia;

According to article 20(1) of the proclamation, there are three ways a person/entity could engage in a foreign exchange transaction. The first is a person/entity may be an ‘authorized dealer’ which means that such person/entity other than banks is authorized by the NBE to engage in foreign exchange transaction. The second way is through authorized banks which can engage in foreign exchange transaction. Third, a person or entity may have a special permission of the NBE to engage in foreign transaction. From these three ways, banks are mostly used to settle a foreign exchange transaction commitment.   

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Export of Goods and Foreign Exchange

1. 1. Letters of Credit,
   2. Cash Against Documents,
   3. advance payments,
   4. consignment sales, and
   5. Open Accounts for e-commerce or National Bank of Ethiopia-approved transactions.

Retention and Utilization of Foreign Currency for Exporters

(Article 6 of the Directive)

The directive prohibits the export of goods or entrance into export commitments without prior approval from an Authorized Bank. Payment should also secured through appropriate instruments.

Exporters must repatriate sales proceeds in foreign exchange either before, at the time of export, or within three months, unless a different period is specified by the National Bank of Ethiopia (NBE). Upon repatriation, exporters are required to convert 50% of their foreign exchange earnings into Birr at a negotiated rate while retaining the other 50% in a Foreign Exchange Retention Account for their own use. This retained foreign exchange can be used for current account payments, such as imports, services, dividends, and debt repayments.

As a temporary measure, any foreign exchange remaining in the Retention Account after 30 days must be sold to the transacting bank, although earlier conversion is permitted. The NBE may adjust the percentage of immediate conversion and the retention period. Conversion requirements do not apply to foreign direct investments, foreign grants, FCY accounts, external loans, or portfolio inflows.

Import of Goods and Foreign Exchange

(Article 8 of the Directive)

Authorized Banks issue import permits upon the presentation of required documents and ensure that import payments align with the specified commitments. Franco-Valuta imports are permitted under regulatory standards without using the banking system's foreign exchange. Detailed in Annex Two of the Directive, import-related requirements include the registration and approval of import applications, payment modes, documentation, inland dry port imports, used goods, supplier credits, special import conditions for diplomats, international organizations, NGOs, commodity classification, and the necessary actions before and after document receipt.

Foreign Currency Hold Limits

(Article 22.7.1 of the Directive)

1. Ethiopian Residents: Upon entering Ethiopia, residents carrying foreign currency must convert it to Ethiopian Birr or deposit it into a foreign currency account within 30 days. If the amount exceeds USD 10,000 or equivalent, a customs declaration is required for deposit.
2. Foreign Nationals of Ethiopian Origin or Non-Resident Ethiopian Nationals: If staying for more than 90 days, they must deposit foreign currency into a Non-resident Foreign Currency Account within 90 days. For amounts exceeding USD 10,000 or equivalent, a customs declaration is required for deposit or conversion to Birr.
3. Non-Residents may hold foreign currency up to the validity period of their visa.

Customs Declaration of Foreign Currency

(Article 22.8 of the Directive)

Declaration Requirement

Upon entering Ethiopia, anyone carrying foreign currency exceeding USD 10,000 or its equivalent in other convertible currencies must declare it using a specified Customs Declaration Form at the airport or other entry points. Nevertheless, no declaration is needed for foreign currency amounts under USD 10,000 or equivalent. Transit passengers are exempt from the requirement to declare foreign currency.

Permissible Amount of Foreign Currency for Travel Abroad

Residents of Ethiopia are allowed to carry foreign currency abroad if they present a bank advice issued for the purchase of the currency within 30 days. On the other hand, non-resident Foreign Nationals of Ethiopian Origin and Non-Resident Ethiopian Nationals may carry foreign currency abroad if they present a bank advice issued within 30 days. If they are entering Ethiopia with foreign currency and leaving within 90 days, they must declare amounts exceeding USD 10,000 or equivalent.

Embassy Employees, Temporary Workers, Workshop Participants, or Trainers can carry more than USD 10,000 or equivalent if they provide a bank advice, employer’s letter, or supporting letter from a workshop coordinator confirming the legal acquisition of the foreign currency.

Prohibitions

(Article 11.5 and 22.5 of the Directive)

• Representatives are not allowed to provide remittance service without having a valid remittance service contract approved by National Bank. An International Remittance Service Provider is also not allowed to assign its employee as a liaison officer or interpreter at the premises of a representative or at a pay point. Remittance Service Agreement may not be subject to exclusivity conditions.
• Authorized Banks are neither allowed to engage in the shipment of foreign currency cash notes abroad nor can they either order or receive a consignment of foreign currency cash notes.
• Unless otherwise provided by the directive or pertinent laws or without authorization of the National Bank, a person may not transfer or pay foreign currency in cash to a third party either as donation or gift or to discharge any obligation. In addition, a person may not hold or carry foreign currency while it is prohibited to undertake any cash transactions in foreign currency in Ethiopia, unless for the specific cases authorized by NBE.

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Penalties for Violating the Forex Rules

Whosoever in violation of the provisions of the Proclamation or regulations or directives issued pursuant to the Proclamation is criminally liable if he/she:

1. engages in transactions of foreign exchange or fails to declare to a bank or authorized dealer when he acquires foreign exchange or the right to receive foreign exchange;
2. receives or effects payments in foreign exchange;
3. delays his receipt or extinguishes his right to receive foreign exchange;
4. leaves or attempts to leave or enters or attempts to enter Ethiopian territory carrying Ethiopian currency in excess of the amount fixed or authorized by the National Bank; or
5. is found carrying foreign exchange in excess of the amount fixed or authorized by the National Bank;
6. in any other manner violates or obstructs the implementation of the Proclamation or regulations or directives issued pursuant to this Proclamation;

A violation of one of the above rules entails confiscation of the property which the offense is committed and punishment in accordance with the Criminal Code of Ethiopia and Article 26(2) of the Proclamation.

Some of the punishments by virtue of article 26(2) of the Proclamation include:

• Rigorous imprisonment not exceeding 15 years and fine not less than Birr 50,000 and not exceeding Birr 100,000 where the accused misused the power of his official position or where he committed the offence with intent to improperly amass wealth or where the offence is committed repeatedly;
• Where the offence is committed by a body corporate, the fine may be raised to six times the value of gold, currency, security, goods or any other property with which the offence is committed;
• Whosoever commits over or under invoicing of imported or exported goods shall be punishable with fine up to three times the value of the property and with rigorous imprisonment from 15 to 25 years; and
• Where any offence under the Article is committed by a body corporate, the director or any other official who was, at the time of the commission of the offence, responsible for the management of the body corporate shall be jointly liable and shall be punishable with rigorous imprisonment from seven to ten years and with fine from Birr 50,000 to Birr 100,000, unless he can prove sufficiently to the court that he had no knowledge and could not, by the exercise of reasonable diligence, have had knowledge of the commission of the offence.

(Article 26 of the Proclamation)

Any bank or other licensed entities that fail to comply with the requirements of any provision of the Directive shall be subject to fines and other penalties consistent with Article 26 of the National Bank of Ethiopia Establishment (as Amended) Proclamation No. 591/2008. Penalties applied will be in the amount of USD 2,500 (USD Twothousand five-hundred) per violation of the rules of the Directive.

NBE will have the discretion to impose additional financial and administrative penalties, including license revocation, temporary service suspension or any others as appropriate. In addition, consistent with the NBE Establishment Proclamation, further legal and criminal penalties may apply. 

NBE’s Governor or Vice Governor (Monetary Stability Cluster) has the discretion to decide on the specific penalties applicable for particular violations of the Directive. 

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