When Ethiopia floated the birr in July 2024, foreign exchange (FX) auctions were meant to be a bridge, not a permanent fixture. The expectation was simple. As the market adjusted, the central bank would gradually step back.
Nearly two years on, those interventions have only escalated.
In June alone, the National Bank of Ethiopia (NBE) sold $200 million to commercial banks to meet urgent import demand. Since January, it has injected roughly $3 billion into the FX market—more than triple the amount supplied during all of last year. The central bank argues the steps are necessary to stabilise the local currency, and boost system liquidity.
Early signals have been largely positive. Decades-old FX backlogs have nearly disappeared, the exchange rate is less volatile and investor confidence is gradually returning.
But these gains have come at a price. Every dollar sold into the market is one less dollar in Ethiopia’s reserve stockpile. And while the country’s external reserves have strengthened in recent months, they remain thin by emerging-market standards. How much longer these buffers can hold, remains an unanswered question.
An economy starved for dollars
For decades, Ethiopia’s biggest economic constraint was not demand or investment. It was dollars.
Foreign currency was tightly controlled under a crawling peg that kept the official value of the birr out of step with market realities. Sold as a framework that would deliver exchange-rate stability and low inflation, it instead pushed an increasing share of FX inflows into the parallel market. Exporters and remittance recipients had little incentive to sell dollars through official channels, while importers often waited months for scarce allocations. Businesses delayed expansion. Manufacturers struggled to secure raw materials. Foreign investors found it difficult to move capital in and out of the country.
By 2022, the cracks in Ethiopia’s FX regime were becoming impossible to ignore. Inflation had climbed above 30%, foreign reserves had fallen to historic lows, and the gap between the official and parallel exchange rates had widened beyond 100%.
As the pressures persisted, the government launched its ambitious Homegrown Reform Agenda in July 2024. In a landmark move, the NBE floated the birr, effectively unshackling the FX market from strict controls.
The fallout from the reform was swift. Within days of lifting state controls, the birr had weakened from 56 to 83/$1, a depreciation of more than 30%.
To cushion the shocks from the adjustment, the central bank began periodic dollar interventions in August 2024. In a statement announcing the reforms, the central bank said it would make “only limited interventions” during the market’s “early days” and only in response to “disorderly market conditions.”
By March 2025, the programme had been officially formalised, with regular FX auctions scheduled every two weeks. The scheme has also grown far beyond its original scope. The first auction sold just $30 million. By January 2026, the central bank had put up $500 million in a single “special” auction.
A review of NBE’s published auction results by BusinessFront shows $2.1billion was injected into the market in the first six months of 2026 alone. That is almost twice the $770 million the International Monetary Fund (IMF) estimates was allocated over the 17 months to December 2025.
Total interventions have now reached roughly $2.9 billion. This excludes a separate $521 million sale to the Commercial Bank of Ethiopia for fuel imports during the programme’s early months.
What began as a stopgap measure quickly became a standing feature of Ethiopia’s new FX regime.
Where the dollars came from
Behind the NBE’s aggressive intervention drive is a sharp turnaround in the country’s external position.
In 2024, East Africa’s second-largest economy had less than one month of import cover, leaving it with one of the weakest reserve positions globally. Since then, the IMF says coverage has roughly tripled as reforms gather pace. In its latest Country Report, published in January, the Fund put Ethiopia’s gross international reserves at $4.4 billion for the fiscal year ending July 7, 2025, up from $1.4 billion a year earlier.
Afreximbank puts the figure even higher, at $6.8 billion.
Official data from the NBE links the rebound to a surge in FX supply, driven by stronger export earnings and renewed investor confidence. In the first year of the reforms, overall inflows rose 33% year-on-year to a record $32 billion. Merchandise exports alone exceeded $8 billion, as gold and coffee benefited from record-high global commodity prices. Remittances climbed to $7.1 billion, while foreign direct investment (FDI) reached $3.9 billion, a marked recovery from recent lows.
The reform push has also unlocked fresh support from international lenders. After nearly 15 years of restricted access, the IMF resumed funding under a $3.4 billion Extended Credit Facility in mid-2024. More than $2 billion has already been disbursed, adding another layer of support to Ethiopia’s external buffers.
“As a result, the current account deficit narrowed to 0.8 percent of GDP in 2024/25, compared to 2.9 percent of GDP in 2023/24,” the lender noted in a recent review.
The Fund expects reserves to rise further, to $5.3 billion by end-2026 and $10.3 billion by 2028. But those projections assume commodity prices stay elevated, underscoring how much of Ethiopia’s recovery still rests on a narrow export base. According to Agence Française de Développement (AFD), gold and coffee still account for nearly 70% of export receipts.
That matters because reserve adequacy remains thin by global standards. Even at $4.4 billion, Ethiopia’s reserves would cover only about 1.8 months of imports, well short of the three-month threshold often treated as the minimum for developing economies. Last year’s import bill was about $18.8 billion, leaving a wide gap between what the country buys and the foreign exchange it has on hand.
Those numbers define the limits of NBE’s intervention strategy. Since the reforms began, the central bank has supplied roughly $3 billion to the FX market. Against the reserve stock, that is equivalent to roughly two-third to one-half of the total, depending on which estimate is used.
For now, the central bank has more room to manoeuvre than it did a year ago. Whether that room proves sufficient will depend on how durable the inflows behind the recovery turn out to be.
Is stability enough?
Judged by their immediate objective, the interventions have largely paid off.
The birr has stabilised, trading at 157/$1 at the last FX auction in June, representing a depreciation of only 1.68% from December 2025. More importantly, Ethiopia’s financial system is more liquid than it has been in decades.
Since July 2024, the parallel market premium has narrowed from about 15% from more than 100%, encouraging exporters and remittance recipients to return to formal banking channels.
Businesses are also finding it easier to access foreign currency. As at July 2025, banks were selling an average of $25 million in FX to businesses each day, up from $11 million when the reforms began. Monthly sales have almost doubled to about $500 million from $258 million a year earlier, easing shortages that had constrained imports and production.
The gains are tangible. Stability has been restored. But analysts warn, this might not be enough.
“FX auctions do not stop birr depreciation,” says Shambel Alemye, Manager of Research and Intelligence Division at Ahadu Bank. “This is because they don’t create foreign exchange; they only redistribute scarce reserves and offer temporary relief.”
Sustainable currency stability, he argues, depends on expanding the country’s capacity to earn dollars. According to him, that means moving “beyond raw commodity exports, removing structural bottlenecks in logistics, electricity and customs and reducing import dependence through targeted import substitution.”
Without fixing the FX generation problem, Alemye says, repeated auctions will only delay adjustment, not resolve it.
A market yet to stand on its own
While the market is gradually returning to steadier conditions, independence remains a tougher test. The clearest clues lie in the auctions themselves.
Nearly every sale since August 2024 has been oversubscribed. At the latest auction, for instance, banks sought about $160 million against the $100 million on offer, leaving $60 million in unmet demand. That pattern has persisted despite stronger reserves, higher FX inflows and a narrower gap between the official and parallel markets.
In a mature FX market, banks increasingly source foreign currency from one another, with the central bank intervening only occasionally to smooth volatility. Ethiopia has yet to reach that stage. Instead, demand continues to converge on NBE’s auction window, suggesting the market still lacks the depth to clear itself.
The pace of interventions reinforces that picture. Rather than fading as market conditions improved, official support expanded rapidly in recent months.
None of this diminishes the progress made so far. Liquidity has improved. Dollar shortages have eased. Confidence in the formal market has returned. But the auctions reveal an economy that is still adjusting to life under a liberalised FX regime. The market is functioning more efficiently than before, but not yet financing itself. Until that changes, the central bank’s interventions are likely to remain less a policy choice than a structural necessity.
