| Executive SummaryThe International Conference on the Flotation of the Ethiopian Birr, held from January 23–25, 2025, in Addis Ababa, brought together key stakeholders from different actors and countries to discuss the implications of transitioning to a market-based exchange rate. The conference aimed to explore the benefits, challenges, and long-term impacts of a floating Ethiopian Birr, with a focus on its effect on monetary and fiscal policies, trade, and financial sector performance. The research papers presented, and the panel discussions highlighted both the successes and challenges faced in Ethiopia’s currency reform and featured international perspectives on similar reforms across Africa and beyond. This policy brief summarizes the key findings and provides policy recommendations to ensure the success of this reform and its integration into broader African economic governance.2. BackgroundHistorically, the Ethiopian Birr was pegged to the US Dollar, a policy that offered not only limited flexibility but also introduced significant challenges for the country’s economy, particularly in terms of competitiveness, inflation control, and macroeconomic stability. In July 2024, the government initiated the flotation of the Ethiopian Birr as part of its Homegrown Economic Reform Agenda (HERA II), signaling a shift towards a more market-determined exchange rate system. The reform aims to address structural issues such as trade imbalances, low foreign exchange reserves, and an overvalued currency, while promoting export competitiveness, attracting Foreign Direct Investment (FDI), and enhancing economic resilience.However, floating the currency introduces risks such as increased exchange rate volatility, inflationary pressures, and potential disruptions in the financial sector. The conference explored these risks and the necessary steps to mitigate them, while focusing on the broader implications for Ethiopia’s macroeconomic framework. |
