Ethiopia Paves the Way for Central Bank Digital Currency, Banking Revolution

The Council of Ministers today approved a draft proclamation that establishes a legal framework for the introduction of a central bank digital currency (CBDC) in Ethiopia. This significant development, made through the revision of the National Bank of Ethiopia Establishment Proclamation, paves the way for the Bank to issue its own digital currency alongside the existing fiat currency when deemed necessary.

“The National Bank of Ethiopia, NBE, has prepared these proclamations, taking into account the current and future levels of development and policy direction, as well as rapid technological advancements, international principles, and best practices and experiences of peer central banks,” said the bank in a statement.

A CBDC is a form of digital currency issued by a country’s central bank. It is similar to cryptocurrencies, except that its value is fixed by the central bank and equivalent to the country’s fiat currency. Many countries are developing CBDCs, and some have even implemented them with varying levels of success. In November of last year, the NBE had said it was exploring CBDC.

According to the NBE, CBDC, along with other measures introduced, is an integral part of the regulator’s reform agenda.

In addition, the Council also approved the Revised Banking Business Proclamation, which opens Ethiopia’s banking sector—isolated from foreign participation for over 50 years—to international investors for the first time. This draft outlines four avenues for foreign investment participation: purchasing stakes in existing or new domestic banks, setting up subsidiaries, opening branches, or establishing representative offices.

The two draft proclamations will shortly be referred to the House of People’s Representatives for review, comment, and final ratification.