In a significant move aimed at easing foreign exchange shortages, the Commercial Bank of Ethiopia (CBE) has approved $121 million in FX requests from the private sector—covering 505 cases, or 81% of total applications submitted in a single day, July 22, 2025.

This latest allocation signals the government’s intention to respond to mounting pressure from businesses and importers who are struggling to access hard currency through official channels. However, the move also comes at a time when Ethiopia’s parallel forex market is spiraling, with rates climbing to 174 ETB per USD, up from 150 just weeks ago, and far above the official rate of 137.13 ETB at CBE.

A Response to Surging Demand—and Growing Frustration

CBE’s announcement emphasized that this allocation was in addition to its daily forex provision for priority sectors such as fertilizer, fuel, and essential services. “We are responding to FX requests on a regular basis,” the bank stated, “in line with the needs of our valued customers and the strategic priorities of our country.”

Still, the unusually high volume of approved requests suggests a backlog in demand—a warning sign that formal supply is failing to keep pace. At the same time, informal markets have seen volatility and sharp spikes, with unofficial rates reportedly ranging from 168 to 177 ETB/USD within a single week.

Why the Black Market Is Surging Again

Part of the surge in black market activity can be traced to an unexpected pause in official forex auctions. The last recorded auction by the National Bank of Ethiopia (NBE) was held on June 19, 2025. Normally conducted every two weeks, these auctions are a critical pipeline for feeding forex into the banking system.

Without those injections, commercial banks have limited ability to serve importers and other demanders—who, in turn, seek alternatives in the parallel market, where dollars are more expensive but readily available. This creates a self-reinforcing cycle: the more strained the official market becomes, the more attractive and active the black market grows.

Reform Promises Tested

This disruption comes just a year after Ethiopia made bold strides in unifying its forex system as part of its agreement with the International Monetary Fund (IMF). In mid-2024, the government eliminated most FX rationing, temporarily shrinking the black market premium to nearly zero.

But the gains are now in jeopardy. According to IMF Country Report No. 25/189, the premium had already reached 17% by May 2025. Today, with the black market at 174 ETB/USD, the gap has widened to over 38%, challenging the credibility of reform efforts.

The IMF identifies the following structural weaknesses fueling parallel market pressure:

  • Persistent capital controls and regulatory uncertainty
  • 2.5% commission on forex sales via the central bank
  • Negative real interest rates on birr-denominated assets
  • An underdeveloped financial sector lacking hedging tools
  • Limited investor confidence due to macro and geopolitical risks

Can One Bank’s Allocation Shift the Market?

While CBE’s $121 million FX injection is a welcome relief for many businesses, it is unlikely to be sufficient on its own to close the widening gap between official and parallel markets. For that, Ethiopia will need:

  • A resumption of regular forex auctions by the NBE
  • Increased confidence in the sustainability of reforms
  • A return to positive real interest rates to make birr assets more attractive
  • Greater use of market instruments and hedging tools
  • Encouragement of foreign bank entry to improve competition and depth

The CBE’s recent action is both symbolic and substantive: it shows the government is listening and responding. But unless forex flows normalize and confidence returns to formal channels, pressure will continue to mount.

The parallel market isn’t just a shadow economy—it’s a barometer of trust. And right now, it’s flashing red.