Addis Abeba – Ethiopia’s recent decision to allow the Ethiopian birr (ETB) to float freely against the US dollar (USD) marks a significant shift in its economic strategy. As of August 3, 2024, this policy has led to a dramatic depreciation of the ETB and severe inflationary pressures. The exchange rate of the USD has surged from approximately 57 ETB to between 91 and 100 ETB, reflecting a substantial depreciation of about 58%.
This sharp decline has had immediate repercussions on the cost of living and market stability, raising serious concerns about the policy’s effectiveness and its impact on the Ethiopian population. This analysis explores the implications of this policy and compares Ethiopia’s experience with other countries that have implemented similar reforms, highlighting the critical challenges and lessons learned. The Ethiopian government’s shift to a free-market exchange rate has had profound economic consequences.
The depreciation of the ETB has led to significant increases in the prices of essential goods and services. As of August 3, 2024, the cost of onions has risen from 40-50 ETB per kilogram to 70 ETB, cooking oil has increased from 1,100 ETB to 1,500 ETB for 5 liters, and the price of teff, a staple grain, has surged from 16,500 ETB to 19,000 ETB. Similarly, construction materials have also seen dramatic price hikes, with the cost of one quintal of cement climbing from 1,400 ETB to 2,000 ETB.
The prices of vehicles have skyrocketed by hundreds of .