Open access Articles CC BY 4.0 April 16, 2025

Open Access Article Economics Digital Economy

From Peg to Float: Economic and Political Implications of the Ethiopian Birr Flotation

Authors

Authors: Fentahun Admassu Yayeh1,*

Author info & affiliations
  1. Financial Cooperatives Development and Leadership Directorate Director Amhara National Regional State Cooperatives Promotion Authority, Bahir Dar, Ethiopia
  2. * Author to whom correspondence should be addressed.

Publication: Innovation Economics Frontiers, Vol. 28 No. 1 (2025), pp. 46-61 https://doi.org/10.36923/iefrontiers.v28i1.286

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Abstract

The adoption of a floating exchange rate system constitutes a pivotal economic policy decision that both reflects and influences a nation’s broader political economy. The flotation of the Ethiopian Birr (ETB) marks a substantial shift in Ethiopia’s monetary policy framework, carrying significant implications for the country's macroeconomic stability and development trajectory. This paper investigates the rationale behind the policy shift, its anticipated economic impacts, and potential future pathways for Ethiopia. Through a systematic review of the literature and comparative analysis of case studies from other countries, the study provides a comprehensive evaluation of the benefits, risks, and strategic considerations associated with the move to a floating exchange rate. While the reform offers promising prospects for greater economic autonomy, enhanced trade competitiveness, and market-driven growth, it also introduces considerable challenges, including inflationary pressures, socioeconomic inequality, and political uncertainty. To fully leverage the potential of this transition, Ethiopia must prioritize sound policy management, institutional strengthening, and structural economic reforms. These measures are critical to mitigating the inherent risks of exchange rate liberalization and to ensuring that the country achieves long-term macroeconomic stability, inclusive growth, and sustained structural transformation.

Article information

Keywords
Floating Exchange RateEthiopian BirrCurrency FlotationInflationMonetary PolicyTrade BalancePolitical EconomySub-Saharan AfricaInstitutional ReformEconomic Transition
Section
Articles
Issue
Vol. 28 No. 1 (2025)
Pages
46-61
Submitted
January 21, 2025
Published
April 16, 2025
Corresponding author
Fentahun Admassu Yayeh
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