“What can I get you with the change?” This is the question Muna asks the customers who frequent her little storefront near Bole Medhanialem, Addis Ababa, when they wrap up their shopping.
Muna politely explains that finding small denominations has become an irksome daily task and in place of the scarce coins or small notes, she often offers a “sweet” compromise in the form of a few pieces of candy.
Most of her customers, however, are no longer bothered with change of less than 10 Birr. They routinely wave her off with a careless “no problem,” leaving the balance behind.
Not long ago, the Ethiopian market actively transacted in “santims”—the 5, 10, 25, and 50-cent fractions. Today, these coins have disappeared from circulation, rendered useless by the Birr’s falling purchasing power.
The trend has moved up the ladder. The one Birr note (and its coin counterpart) has largely been driven out of use. Now, the blue-tinted five Birr faces a similar fate. On the city’s blue-and-white taxis, conductors rarely bother to offer a five-Birr return, and travelers seldom demand it.
For shopkeepers like Muna, the “candy economy” is a daily reminder of a shifting economic landscape where the smallest pieces of the Birr are being left behind by history.
Once the undisputed king of the wallet, the 100 Birr note is now the standard unit for basic small purchases. The National Bank of Ethiopia (NBE) introduced the now ubiquitous 200 Birr note as part of a demonetization program in late 2020, and the note now dominates cash transactions, which themselves are growing more rare in an era of rapid digitalization.
As the value of the currency erodes, the physical cost of producing and carrying small denominations begins to exceed their actual value in the market.
In July 2024, the government prescribed an economic medicine to cure a chronically distorted foreign exchange market: allowing the currency to trade freely. It was a systemic stress test for the Ethiopian economy. What was prescribed as a necessary correction for long-term health has triggered an acute and painful crisis for millions.
Improving export performance was a primary objective of the decision to float the currency. Indeed, the nation’s total export earnings have shown significant improvement, however, this growth is largely attributed to the performance of two commodities—coffee and gold—and is primarily driven by favorable international prices rather than an increase in productivity.
Another key goal was unifying the official and parallel market exchange rates. While this appeared successful in the early days of the reform, the gap has since begun to widen.
The float was also intended to capture the vast potential of diaspora remittances by making formal channels as attractive as the black market. Yet, a substantial portion of these funds continues to flow through informal ‘hawala’ networks due to persistent trust issues and logistical advantages.
Amidst these complex outcomes, one reality remains undeniable: the drastic depreciation of the Birr. The scale of the currency’s realignment is not a matter of speculation; it is etched in official statistics. According to monthly averages from the Commercial Bank of Ethiopia (CBE), the Birr’s cash buying rate against the dollar underwent a dramatic transformation, from approximately 57 in May 2024 to over 151 by December 2025. This was not an abstract financial shift.
The depreciation has transmitted directly and forcefully into the cost of living. Today, the currency’s purchasing power sits at its lowest point in history—a decline underscored by Ethiopia’s bottom-tier ranking, alongside South Sudan, on a World Bank African currency performance index published recently.
However, experts are calling for a more nuanced interpretation of reports that label the Birr as one of the “world’s weakest currencies.” They argue that a rapid rate of depreciation against the dollar is not the sole metric of a currency’s fundamental strength. “Focusing solely on the rate of exchange rate decline is a misleading way to interpret the situation,” underscores Abdulmenan Mohammed (PhD), a London-based financial analyst.
Nevertheless, it is widely accepted that ongoing circumstances are placing an unprecedented strain on the Ethiopian consumer, and analysts caution that this pressure is likely to continue
The Toll of Depreciation: Fuel Prices Under Pressure
The price on imported items happened to be one key area that felt the pain. The sharp devaluation has raised the cost of living and doing business, as the cost of imported fuel, fertilizers, and machinery all rise in tandem. Fuel, one of the country’s largest imports, has become the most visceral symbol of Ethiopia’s currency crisis.
The cost of fuel, the lifeblood of the economy, has raced upward in lockstep. The price of a liter of gasoline climbed from 78.67 Birr in May 2024 to more than 129 Birr by the end of 2025, ensuring that for households and businesses, the promise of reform translated into a relentless daily squeeze.
This surge created a stark dissonance with the global market, where the World Bank’s October 2025 outlook projected Brent crude to average a stable USD 68 per barrel in 2025 and decline further thereafter. This structural reality explains the persistent disconnect between stable global oil prices and rising domestic costs, transmitting external price shocks directly into daily life. The contradiction laid bare a hard truth: Ethiopia’s domestic prices were being driven less by international oil costs and more by the exchange rate vortex and internal vulnerabilities.
The NBE’s own audit reports point to the profound and persistent import dependency as the foundational cause of this extreme sensitivity.
In 2022/23, merchandise import costs reached USD 17.1 billion and fuel alone accounted for nearly four billion dollars. With export earnings lagging, the merchandise trade deficit stood at a staggering USD 13.5 billion.
The following year underscored the deepening trend. Total imports grew to USD 18.4 billion, and the trade deficit widened to USD 14.6 billion. The strain on the country’s external position was clear, with the overall balance of payments recording a USD 1.35 billion deficit, depleting vital foreign reserves.
The true weight of the Birr’s depreciation is most visible when examining the fuel import burden. While fuel’s share of the total import bill shifted from 23.1 percent in 2022/23 to 18.6 percent in the first half of 2024/25, this percentage dip is deceptive. Because the Birr collapsed from 57 to over 150 per dollar, the actual amount of local currency required to settle that fuel bill has effectively doubled.
Ethiopia is essentially running faster only to stay in the same place—spending record amounts of Birr for a commodity whose global price has remained stable, simply because the medium of exchange has lost its footing.
Yet, officials in charge of the reform argue that the Birr’s previous rate was not its true market value, and that the current rate simply reflects its actual worth post-reform. Some experts back this argument. Hhowever, there is one critical aspect where analysts strongly beg to differ: how the Birr is valued by the economic elite and the level of trust it has managed to secure.
Confidence and the Quiet Retreat from the Birr
For Kebour Ghenna, an active commentator on the Ethiopian economy, the Birr’s fall is more than a monetary event, it is a crisis of faith. He argues that the persistent depreciation is fundamentally driven by a loss of confidence, triggering a quiet but widespread retreat from the national currency.
According to Kebour, a profound ‘behavioral change’ is taking hold among the Ethiopian elite. As confidence in the national currency falters, the wealthy are increasingly abandoning the Birr and seeking refuge in real estate, physical assets, and—most notably—foreign exchange.
He explained the psychology driving this shift as a rational response to lived experience.
“When there is inflation, and when people understand that money will lose its value, many will try to retain that value by buying land, holding dollars, or purchasing gold,” said Kebour.
Although Ethiopian law does not permit trading in currencies other than the Birr, the real estate and vehicles markets are among those who quote prices in US dollars. The actual payment may be in Birr, but the price is recalculated daily based on the morning’s exchange rate.
This erosion of trust manifests not in loud protests but in silent, defensive financial behavior. Kebour describes a pattern of “quiet disinvestment,” where the economically informed seek safety elsewhere.
“They respond by keeping savings in dollars rather than Birr, moving capital abroad through formal and informal channels, investing in foreign real estate, bank accounts, or businesses, or delaying local investment,” he noted.
Abdulmenan observes a similar trend of people abandoning the local currency. “That is exactly what I observe these days, even among people we know. They are increasingly losing confidence in the Birr,” he told The Reporter Magazine.
The consequences of this collective retreat are systemic and self-reinforcing. Kebour warns that the signal sent is unmistakable and damaging: “When the most financially informed segment of society refuses to keep wealth in its national currency… the Birr no longer inspires confidence.”
“Adding insult to injury,” notes Abdulmenan, “the housing market—where people traditionally invested their wealth—is currently not a viable choice either. Consequently, people are converting their assets into international currencies, particularly USD. You see that trend accelerating, which speaks volumes about the overall situation we are in.”
This behavior directly tightens the domestic supply of foreign currency, intensifies pressure on the exchange rate, and weakens the banking sector’s ability to mobilize Birr deposits for productive lending.
“A currency cannot be strong when its own wealthy citizens treat it as a liability,” Kebour told The Reporter Magazine.
The loss of confidence, therefore, is not just a symptom of the crisis; it is a powerful accelerant.
Eshetu Fantaye, an Ethiopian banking veteran, highlights an important nuance. He argues that current conditions are characterized by both the scarcity of foreign exchange and liquidity strains in the market.
Eshetu points out that the number of people who can actively and routinely convert large sums of Birr into dollars is limited.
“What the current liquidity strain means is that most people do not have enough Birr to exchange for dollars,” he told The Reporter Magazine. “So, what we are seeing in Ethiopia currently is both a suffocation of Birr liquidity and also a shortage of foreign exchange.”
Eshetu points to specific groups who still hold significant Birr liquidity, including foreign contractors paid in large sums and actors in the gold trade. Policy responses, he argues, need to differentiate between these groups rather than treating all market participants the same.
The National Bank of Ethiopia (NBE) consistently maintains that there is no foreign exchange shortage. From former Governor Mamo Esmelealem Mihretu to the current Governor, Eyob Tekalign (PhD), leadership has argued that reserves remain sufficient. Last month, the NBE conducted its 12th foreign exchange auction for banks.
Shortly after assuming his role, Governor Eyob pledged that the Birr would strengthen—a promise that has yet to materialize. “He said ‘soon,’ which I expected to mean within at least three months. Instead, we have seen a continued depreciation of the Birr,” Abdulmenan noted.
Abdulmenan emphasizes that the NBE must substantiate its promises with practical action to prevent a total collapse of institutional trust. “You must back your words with action. Otherwise, the increasing public mistrust will only fuel the problem,” he concluded. “One must not forget that in this economy, expectations are a primary driver of market behavior.”
Beyond Monetary Malfunction
Kebour and Eshetu concur that the Birr’s depreciation is not a simple monetary malfunction, but a reflection of deeper, unresolved problems in the economic foundation.
Eshetu identifies a classic “J-curve” trajectory, where initial successes in the form of foreign reserves tripling and export earnings jumping to USD 8.3 billion are followed by a swift reversal.
By July 2025, parallel market premiums that had been tied down in the early days of the currency reforms had creeped back up to approximately 30 percent, suggesting the gains were temporary.
For Abdulmenan, the problem is complex and multifaceted rather than being solely an exchange rate issue. He noted, “The currency, the political situation, and the underlying policies all remain unstable and unpredictable. You cannot say with any confidence what will happen tomorrow morning; there are just too many variables.”
Analysts point to this pattern when arguing that price reforms alone are insufficient for sustainable unification. A stable regime, Eshetu argues, requires systems to formalize key foreign currency flows—including remittances, exports, FDI, and non-commercial inflows—built on a foundation of transparency, digital infrastructure, and coordinated regulation.
This technical diagnosis aligns with Kebour’s broader philosophical point regarding what a currency truly represents. “A currency is not just a medium of exchange,” he emphasized. “It is a measure of institutional credibility, economic health, and public confidence. When these weaken, the currency follows.”
The path forward is neither quick nor simple. It requires coordinated reforms that strengthen production, formalize foreign exchange flows, build credible institutions, and restore public trust. Until then, pressure on the Birr and the prices it shapes—especially fuel—is likely to remain a defining feature of Ethiopia’s economic landscape.
Abdulmenan calls for a serious commitment to production and export diversification, noting that political stability remains an absolute necessity if the situation is to improve.
