- Ethiopia’s National Bank has prepared two proclamations as part of an economic reform plan, one of which includes the establishment of a legal framework for introducing a central bank digital currency (CBDC).
- The proclamations will create a legal basis for consumer protection, increase the National Bank’s capital, liberalize foreign investment in banking, introduce corrective measures for problem banks, and create a regulatory sandbox for innovative financial solutions.
- The Council of Ministers has approved the proclamations, and they will soon be introduced into the House of Representatives.
The National Bank of Ethiopia (NBE) has prepared two proclamations as part of an economic reform plan. One of them includes the establishment of a legal framework for introducing a central bank digital currency (CBDC).
Legal Framework for CBDC
The policy changes foreseen by the NBE Proclamation include creating a legal framework for a CBDC as necessary, as well as increasing the NBE’s capital and creating a legal basis for consumer protection. The accompanying Banking Business Proclamation addresses liberalization of foreign investment in banking, corrective measures regarding problem banks, and the creation of a regulatory sandbox for innovative financial solutions.
The Council of Ministers has approved the proclamations and will soon introduce them into the House of Representatives.
Broader Economic Reforms
The proclamations are part of the government’s Homegrown Economic Reform Agenda. The privately owned Ethiopian newspaper The Reporter mentioned the government’s interest in a CBDC in April. It said a study would be launched in June. It added that the NBE also aims to join the Cross Border Payment System by December. It did not provide any specifics about that system.
Ethiopia has already taken steps toward economic liberalization, including ending the state monopoly on mobile money services. The country already uses blockchain-based digital infrastructure for large government payments.
Crypto Adoption in Africa
Crypto adoption is making headway in several African countries despite barriers such as low internet penetration. Not all attempts to introduce crypto have been successful. While some countries like the Central African Republic have adopted Bitcoin as legal tender, digital currencies remain illegal in Ethiopia.
At least 18 African countries are researching CBDCs. Nigeria has had mixed success with the eNaira launched in 2022. Zimbabwe used a government-issued gold-backed token as the foundation for introducing its latest currency.
Conclusion
As Ethiopia seeks to modernize and open up its economy, exploring a CBDC could be an important step. However, the country will need to balance innovation with prudent regulation to benefit from crypto’s potential without destabilizing its financial system. Its reform agenda shows a willingness to embrace new solutions, but the path forward remains complex.
