Ethiopian banknote changes intended to fight corruption bringing challenges in unforeseen way
September 19, 2020
Last week, Prime Minister Abiy Ahmed’s government announced banknote changes for three denominations and the introduction of one new (and bigger) denomination.
The purpose, as described by the government, was to combat corruption and control illicit trade in the country. A large reserve of cash outside of the banking system and in the hands of individuals, some believed to be with links to the counter-reform political forces, was among the targets of the policy change. The monetary cost of introducing new banknotes was colossal. The government said that it has made available 2.9 billion birr of the new money for which 3.7 billion birr was spent.
The government announced the old banknotes need to be changed within three months of time, and that people with more than 1.5 million birr reserves outside of the banking system would be confiscated. A new policy was introduced in August 2020 requiring individuals with more than the stated amount of cash reserve to deposit it in banks.
There was another hurdle for those who hoarded a large reserve of cash. They need to produce I.D. when they bring cash to the banks for exchange. It means that the government, if implemented diligently, can have the opportunity to scrutinize questionable large reserves of money.
The reaction to the policy change was affirmative except that some politicians and activists said that it came so late. For the opposition political parties including the Ethiopian Social Democratic Party, the introduced change would bring about economic and political stability, as reported by state media on Friday.
Challenges to the implementation
The purpose of banknotes changes, which is to a great extent related to fighting corruption, is seemingly experiencing challenges. Security and law enforcement forces are given the power to enforce the policy of confiscating more than 1.5 million birr of reserve from individuals.
However, there are reports that security forces are seizing cash below the stated amount, especially in the capital Addis Ababa, and not reporting it to the relevant authorities.
Governor of the National Bank of Ethiopia Yinager Dessie and Ethiopia’s Minister for Finance Ahmed Shide had a press statement on Friday. “There is confusion in connection with banknote changes,” they said, in a way depicting law enforcement behavior as something that emanated from “confusion.”
They said that police should not detain people who are holding less than 1.5 million Ethiopia birr. In fact, they pointed out that there are exceptions even to that rule. Businesses with high cash transactions like gas stations are exempt from the above rule. The government, however, warned that such businesses should not attempt to fraudulently deposit money of those individuals who hoarded above the limit. To close the loophole, the government intends to verify the sales history of businesses like gas stations.
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