Ethiopia has unveiled sweeping amendments to its foreign exchange framework, marking one of the country’s most consequential financial liberalisation moves in decades and signalling a shift toward a more market oriented currency regime.
The National Bank of Ethiopia (NBE) on Wednesday issued Directive No. FXD/04/2026, effective February 12, 2026, removing several long-standing restrictions on access to, transfer of, and use of foreign currency. The overhaul is designed to boost investor confidence, simplify cross-border transactions, and expand foreign-currency access for households and businesses alike.
Why the reform matters
The directive represents a structural break from Ethiopia’s historically tight capital controls, long criticised by domestic firms and foreign investors for fuelling chronic dollar shortages, widening the parallel market, and constraining trade and investment.
By relaxing account rules, expanding remittance channels, and introducing modern hedging instruments, policymakers are seeking to increase formal foreign exchange inflows, reduce dependence on informal FX markets, strengthen investor confidence, and facilitate international trade and payments. Crucially, the reform extends liberalisation beyond corporations to individuals, enabling households to participate more directly in global financial transactions.
Reform momentum and improving external balances
Africa’s second-most-populous nation has been cautiously opening its economy since the early 1990s, but liberalisation accelerated sharply between 2024 and 2025. Key steps included opening the banking sector to foreign participation in December 2024, liberalising retail, wholesale, and import-export trade earlier that year, and passing new investment laws to draw Foreign Direct Investment.
According to UN trade and investment data, FDI inflows have surged from about $12 million in 1990 to roughly $3.9 billion in 2024—underscoring renewed investor interest as reforms deepen.
The latest FX overhaul responds to longstanding pressure from domestic and international investors frustrated by opaque controls and limited repatriation channels.
External indicators have also improved since partial FX liberalisation in July 2024. Multilateral assessments show the current-account deficit narrowing from roughly $3.8 billion to $1.3 billion year-on-year in the second half of the year, with projections pointing to stabilisation near three percent of GDP in 2025, down from 4.4 percent in the previous year.
This improvement has been supported by stronger gold and coffee exports, rising remittance inflows, and programme financing. FX reserves have more than doubled to about $3.4 billion—equivalent to roughly 1.6 months of import cover—helped by multilateral support alongside export earnings.
What changes for individuals
At the household level, the directive introduces a significant easing of restrictions, according to the Ethiopian Capital Market. Residents may now legally send up to $3,000 abroad for family support upon application and documentation, reducing reliance on informal remittance channels.
Banks are also permitted to approve advance foreign payments of up to $20,000 per case for medical or educational services abroad without requiring visa or flight documentation, accelerating urgent transactions for patients and students.
Financial institutions may issue internationally recognised debit or prepaid cards and load foreign currency without proof of travel, expanding access to global payments and e-commerce. In addition, FX account holders are now allowed to use balances to cover overseas expenses for spouses and children once supporting documentation is provided.
Expanded access to foreign currency accounts
Rules governing FX accounts have been significantly relaxed. Minimum balance requirements for opening such accounts have been removed, leaving banks free to determine their own thresholds. Institutions that receive foreign grants or gifts are now eligible to open FX accounts, while foreign companies can establish local foreign-currency accounts without prior central-bank approval, streamlining entry for investors.
Incentives for exporters and service providers
To strengthen foreign-currency supply, the directive allows service exporters—including tourism operators, consultants, engineers, and digital service providers—to retain 100 percent of their foreign earnings indefinitely in retention accounts. This change is expected to improve liquidity management, support export-oriented growth, and deepen Ethiopia’s non-commodity foreign-exchange base.
Introduction of forward FX trading
The reform also introduces forward foreign-exchange trading, permitting banks to offer forward contracts that allow businesses and individuals to lock in exchange rates for future transactions. The measure provides a critical risk-management tool in a volatile currency environment and marks a key step toward modernising Ethiopia’s financial markets.
Reduced bureaucracy and cash restrictions
Administrative requirements have been reduced to lower transaction friction. Cash-declaration rules for amounts above $10,000 when depositing or exchanging foreign currency have been removed, along with corresponding customs declaration requirements, in a move aimed at encouraging participation in the formal FX system.
Business and investment liberalisation
Broader structural reforms are embedded in the directive. Banks are now permitted to approve external loans and supplier credits without prior central-bank clearance, subject to regulatory conditions, and may authorise the remittance of profits and dividends from registered foreign investments. Outward investment by Ethiopian entities is also allowed on a case-by-case basis with NBE approval.
Deepening the forex market
Measures to strengthen market functioning extend to independent FX bureaus, where security-deposit requirements are reduced after six months of operation, monthly cash holdings are capped at 25 percent of paid-up capital with excess liquidity required to be sold to banks, and authorised bureaus may supply foreign currency locally for visa or licensing fees upon proof of payment.
The objective is tighter compliance alongside improved liquidity circulation within the formal system.
