BY YANET FANTAYE WOGAYEHU – For the first time in the country’s history, the National Bank of Ethiopia (NBE), the financial sector regulatory body of the country, has begun accepting applications from business entities seeking to operate an Independent Foreign Exchange Bureaus.
The move is in line with the newly approved Foreign Exchange Directive (FXD/01/2024) that became effective July 29, 2024. Central bank’s Governor Mamo Mihretu has also called it a milestone in the ongoing efforts to liberalize the financial sector. Following the liberalization of the forex market last week, the value of Ethiopian Birr against major currencies has depreciated by about 90 percent- from 58 Birr for one US dollar to 101 Birr in many local banks.
Applicants are expected to show in a blocked account deposit of 30 million Birr for two years, and paid-up capital of 15 million Birr, according to the new foreign exchange directive of the country.
A forex bureau shall conduct its transactions as follows:
1. A forex bureau shall engage in the buying and selling of major convertible currencies on the basis of freely negotiated rates with its customers.
2. A forex bureau shall engage in spot transactions only, with immediate delivery of currencies bought or sold.
3. All forex bureau are required to sell and/or buy cash notes at displayed exchange rates before any subsequent change.
4. All foreign exchange buying and selling transactions by a forex bureau shall be done using forms authorized by the National Bank.
5. All forex bureau shall exercise every care to check the authenticity currencies they buy and use counterfeit detecting machines when exchanging foreign currency cash notes.
Independent FX Bureaus are authorized to engage in the buying and selling of foreign currency cash notes. They are allowed to conduct such transactions on the basis of freely negotiated exchange rates with their customers, according to the new Forexe directive.
The directive lays out the capital and other specific operating requirements for obtaining an Independent FX Bureau license. Accordingly, a business entity owned by an Ethiopian national, Non-Resident Ethiopian, and/or Foreign Citizen of Ethiopian Origin are eligible to operate an Independent FX Bureau.
It, however, has to fulfill a minimum capital requirement of Birr 15 million and is able to provide a Security Deposit of Birr 30 million to be placed in a blocked account at any bank.
NBE expects such bureaus can help in the on-going process of market determination of the exchange rate. Operators of such FX Bureaus are authorized to set buying and selling rates for foreign currency cash notes independently from posted bank rates.
Governor Mamo said the launch of FOREX Bureaus reflects the Central Bank’s Strategy Plan to “fundamentally transform the size, shape, and scope of Ethiopia’s financial sector over the coming years.”
“With the licensing of Independent FX Bureaus, we are marking yet another important milestone in opening up Ethiopia’s financial sector, and also bringing it in line with global norms and best practices,” he said.
Conditions for issuance of Forex Bureau License:
National Bank shall issue an “Independent Forex Bureau License” for a legally established business entity that fulfils the following requirements:
1 – An established business entity, set up in whatever legal form, that is owned by an Ethiopian national, Non-Resident Ethiopian, and/or Foreign Citizen of Ethiopian Origin;
2 – Fulfills the minimum capital requirement of Birr 15 million and is able to provide a Security Deposit of Birr 30 million to be placed in a blocked account (which can be interest-earning) at any bank;
3 – The face value of the Security Deposit shall be released after two years of continued service by the Independent Forex Bureau.
4 – Suitable premise in all respects to carry on the business of a forex bureau and that meets safety and security standards set out by NBE for bank-based foreign exchange bureaus;
5 – Name plate indicating the physical address of the forex bureau(x);
6 – Necessary device/equipment to detect counterfeit notes
7 – Provide list of names and designations of the forex bureau staff;
8 – Ensure that the staffs of the forex bureau are people of integrity, credibility and competence, with no record of fraud, dishonesty, and corruption; and
9 – Ensure that sufficient insurance is procured to fully cover the maximum cash holdings that will be at the forex bureau site at any given time.
The new directive has also opened doors for the first time for foreigners to be engaged in banking sector including opening forex bureaus.