The National Bank of Ethiopia’s (NBE) biweekly foreign exchange auctions have become one of the few predictable moments in the country’s volatile currency market. Every 15 days, the central bank releases hard currency to commercial banks, setting a formal exchange rate and at least temporarily cooling the heat in the parallel market. The latest auction on August 5, 2025, proved the point. The spike in both official and parallel market rates eased noticeably, a reminder that timely injections of liquidity can dampen volatility. But the underlying problem remains: the stubborn gap between the two markets continues to erode confidence, push transactions underground, and drain the formal system of desperately needed dollars. A More Aggressive Auction Strategy If the NBE is serious about narrowing the gap, the current structure is a good starting point but it needs more muscle.
- Stick to the 15-day rhythm. The market has come to expect these interventions, and consistency is its own form of stability.
- Temporarily scale up. For the next three months, auction volumes should rise sharply in the range of $300–$500 million per auction, assuming reserves can support it.
- Signal intentions clearly. Publicly committing to high-volume auctions for a set period will calm nerves, discourage speculative buying, and take some wind out of the parallel market’s sails. What Banks Can Do The auctions alone can’t do the heavy lifting. Commercial banks need to meet the central bank halfway. That means:
- Boosting reserves by actively sourcing foreign currency; expanding remittance channels, offering better exchange rates for inflows, and improving transaction speed.
- Making it worth the diaspora’s while to use official channels. Interest-bearing foreign currency accounts, lower fees, and preferential service could shift flows back to the formal system.
- Backing exporters. Faster payment processing and stronger export financing can bring more dollars home through official channels. Remittances: The Hidden Lever In a country where remittances rival exports as a source of foreign currency, every dollar shifted from the street to the bank vault matters. High official rates, quick settlement, and credible public campaigns run jointly by banks and forex bureaus can rebuild trust. Sell the benefits: safety, speed, and the sense that these dollars are strengthening Ethiopia’s economic position, not just lining a trader’s pocket. Government & NBE: Joint Action Market reforms work best when paired with enforcement. That means:
- Public communication explaining how auctions and official channels help stabilize the economy.
- Tightening the net on illegal traders while making the official market more attractive.
- Gradual liberalization to meet legitimate demand from importers, travelers, and investors a long-term fix that could render the parallel market obsolete. If It Works If these steps are taken together, the payoff could be significant: • Short term (1-3 months): A narrower gap between official and street rates, with speculative demand fading. • Medium term (4-6 months): A sustained shift in remittance flows toward banks and bureaus, bolstering reserves. • Long term: Greater confidence, a stable official market, and a parallel market that’s been pushed to the margins. Bottom Line The NBE’s biweekly auctions are one of the most effective tools we have right now. Keep them. Scale them up temporarily. Back them with stronger remittance incentives, faster exporter payments, and a united front from government, banks, and bureaus. It’s not a silver bullet. But it’s the most realistic path to shrinking the parallel market’s grip, stabilizing the exchange rate, and protecting Ethiopia’s foreign currency reserves.