Strategies for a Stronger Ethiopian Economy

Devaluating a currency, which makes one’s currency cheaper and foreign currencies dearer, is a crucial policy intervention in the forex market with severe economic consequences. Of course, the type and degree of these effects depend on the magnitude of devaluation, the level of economic development a country is at and the perception of stakeholders about a currency’s future value.

The Ethiopian currency, the Birr, has undergone devaluation many times. For instance, a 17 % devaluation in August 2010 (roughly from 13.5 birr/$ to 16.5 birr/$). Similarly, a 15 % devaluation was implemented in October 2017 (from 23.9 birr/$ to a little above 27 birr/$). There is no evidence that these measures achieved their target- to reduce the trade deficit in the subsequent quarters, if not years.

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