Ethiopia today unveils new Birr notes for 10, 50 & 100 denominations, with introduction of a new Birr 200 note. The new notes will curb financing of illegal activities; corruption & contraband. Enhanced security features on the new notes will also cease counterfeit production. pic.twitter.com/Di5WaFNyLm
The Ethiopian government has unveiled a new set of bank notes in an effort to curb illegal trade activities, cash hoarding, and illict financial flows.
The new bank notes, unveiled by the Ethiopian Prime Ministr, Abiy Ahmed, will spot new security features and will include a new 200 Birr note, the highest denomination so far. The five Birr will be changed to a coin.
Ethiopians will have three months to replace their old notes with the new ones.
In August 2020, Ethiopian inflation rate hit 20% due to broad money supply increases at a rate of 20% annually for the last 15 years. So far, this supply now stands at 1 trillion ($27 billion), up from 104.4 billion Ethiopian Birr ($2.8 billion) over that period.
Speaking on this development, the Prime Minister said:
“Money outside the banking system has been rising, affecting the liquidity of commercial banks. This is in addition to its impact on bolstering illegal trade activities.”
It is estimated that over 113 billion Ethiopian Birr ($3 billion) is currently in circulation outside the formal banking system which is exacerbating the liquidity problems for commercial banks this year.
According to some sources, the maximum withdrawal limit for a customer is $4,000 in Birr.
The demonetization strategy will cost over $97 million to print the new currencies. While developing nations employ the strategy to stabilize currencies and ease inflations, it also carries the risk of triggering market chaos and uncertainty as citizens scramble to swap notes.
The last time Ethiopia introduced a new denomination took place at the end of the Ethiopian-Eritrean civial way, two decades ago.
Kenya recently unveiled its new bank notes which are already operational in a similar attempt to curb cash hoarding due to corruption and counterfeits.
Whether these demonetization attempts by African governments will work remains to be seen. However, there is no doubt that cashless payments, including cryptocurrencies, continue to get widespread adoption across the continent.