The Rumor Doing the Rounds in Addis At present, it is rather difficult to ascertain the veracity of the rumor that Abiy’s government is considering a currency change to neutralize cash hoards being used to counter and subvert the on-going reform agenda in Ethiopia. The rumor circulating on the grapevine has it that the antireform elements organized and led by disgruntled veteran EPRDF bigwigs, particularly from the TPLF wing, are waging a life-or-death clandestine battle to regain power by destabilizing the Abiy government through staging mass demonstrations and fomenting inter-ethnic conflicts.
The cash hoards being used to finance these acts of violence and sabotage are reported to have originated form currency printing, excessive bank credit extension, counterfeit money and outright corruption. There is general agreement in Ethiopia today that the EPRDF government prior to the coming to power of Abiye Ahmed and his cohorts was an authoritarian racist (ethnicist) kleptocracy very much in the mould of the Mafia. Why Now? The reason why the rumor is particularly rife at the moment is not far to seek. Abiy’s government has undermined the hitherto dominant force within the inner circle of the EPRDF, namely he TPLF, by controlling its military and security power base, more or less.
The fact that Abiy’s approach to change has been one of reform rather than revolution has meant that the process has needed to be quite slow. Unfortunately, this has given the antireform elements within the EPRDF, of course mainly the TPLF, and their supporters time for a fight –back. The main TPLF counter-reform front is now holed-up in Tigray staging a major stand-off against Abiy’s premiership. It is becoming increasingly clear that TPLF counter-reform resistance is no joking matter as it is apparently well-resourced and funded. It has already intimated that secession may be a credible option unless it is accorded its due dignity and respect from the rest of the country.
The TPLF counter-reform leadership has also indicated the possibility of an armed confrontation if push comes to shove. Worse still, it has blatantly implicated the US government in meddling in internal affairs particularly as regards the election of Abiy Ahmed as Prime Minister of Ethiopia. Understandably, this angered the US government as the PM was elected by a landslide vote of the Central Committee of the EPRDF. What to Do? The counter-reform cabal is ostensibly spoiling for an armed confrontation, which, however, is not in the best interests of the country or of the government.
A much less bellicose approach would, therefore, be neutralizing the alleged cash hoards which are being used to finance the apparent rebellion, which is why the rumor of a currency change is now uppermost in the minds of many Ethiopians in Addis Ababa and elsewhere in the country. History of Currency Change in Ethiopia The history of currency coins date back to ancient times. King Ezana of Aksum is credited with having the first coins minted way back in the 300’s (A.D.).
But currency change occurred when Menilik II switched from the Maria Theresa thaler (the 1780’s) to his own currency notes in the early 1900’s. Emperor Haile Selassie also had to change the Italian Lira and the East African Shilling after the end of the Fascist occupation in the late 1930’s and early 1940’s. Then, President Mengistu altered the Haile Selassie era notes in the name of obliterating the symbol of feudalism on the currency. Finally, the EPRDF government had to change the currency, especially in order to render invalid the Ethiopian currency circulating in Eritrea after the latter’s secession from Ethiopia in 1993.
And now the Abiy government may have to effect yet another currency change under the threat of secession from the recalcitrant leadership of one other province of Ethiopia in order to neutralize the source of financing for the threat. How the Currency Change May be Made As indicated above, Ethiopia is no stranger to currency changes. However, the need to make the preparations and logistics as meticulous as ever remains. Incidentally, currency changes are usually made confidentially and within a short period of time, almost as a surprise.
The usual targets of a currency change to end the legal tender status of an existing currency are notes of higher denominations, the 10-birr and 50-birr notes in the case of Ethiopia. The total volume of these denominations in circulation as well as in the banking system and in stock is known. So, an equivalent amount of these denominations will have to be printed in the new currency to replace the old notes, of course at a considerable cost in foreign exchange.
In view of the fact that there is a serious shortage of foreign exchange in the country at present, at least a portion of the note printing cost may have to be financed by external assistance which could be sought as economic or political stabilization aid. The actual currency exchange could be effected through all bank branches and head offices. Special currency change offices may be opened to assist in the exchange operations.
People with large hoards of currency are not likely to appear to exchange their old notes for fear of being detected and identified as anti-reformists and saboteurs or as persons with ill-gotten gains. This is actually the main cash-neutralizing instrument. The Likely Effects of the Putative Currency Change Apart from ending the legal tender status of cash hoards allegedly being used to finance counter-reform activities, the currency change is expected to bring benefits associated with the mitigation of inflation and with exchange rate stabilization. As is often claimed, the major cause of persistent inflationary pressures in the economy has been excessive monetary expansion emanating from uncontrolled and imprudent domestic bank credit, alarming amounts of counterfeit money being printed and counterpart domestic funds from growing external debts.
To a large extent, the cash hoards mentioned above are believed to have been built from ‘directed credit’ from banks, counterfeit money, and vast amounts of money accruing from corruption. Another benefit to accrue from the rumored currency change would be a substantial reduction in capital flight, which has been an important cause of the severe foreign exchange crunch the country has been facing in recent years.
Pillage by Money The main instrument of plunder of the pre-reform kleptocratic EPRDF government may well be identified as money in the form of currency or bank deposits. The National Bank of Ethiopia (the country’s nominal central bank) provides seed currency by having the Ethiopian currency printed abroad at a cost in foreign exchange. The National Bank of Ethiopia (NBE) was long stripped off its statutory autonomy by the pre-reform EPRDF government and was, therefore, ordered to print any amount of money asked by the then Prime Minister of the day.
Money granted to the government through what are operationally known as direct advances, treasury bills and bonds may in part find its way to the pockets of government officials in all sorts of ways. Then, there are vast amounts of loans and credits extended to government development agencies from government-owned banks, mainly the Commercial Bank of Ethiopia (CBE) and the Development Bank of Ethiopia (DBE), parts of which may be pocketed by officials.
Add to this credits, loans, and advances extended to officials via legal agents and representatives, which may later on be written off, and counterfeit money. All this money is used to mobilize domestic resources to build high-rise buildings and villas; the foreign cost components would be financed through legally applying for foreign exchange from domestic banks.
Cash in foreign exchange is obtained through over- and under-invoicing imports and exports and through capital flight via the domestic parallel market (also known as the black market). It has recently been estimated that illicit foreign exchange transfers abroad by kleptocrats in Ethiopia over the last twenty-seven years amount to nearly 37 billion dollars! Capital flight also occurs through so-called commissions (actually kickbacks) officials and accomplices collect on foreignfinanced government development projects.
In other words, money in the form of domestic currency, bank deposits, loans, advances and foreign exchange is used to mobilize real domestic and foreign resources to build high-rise buildings, villas and luxury cars in order to enrich oneself without having to work and create value in any real sense of the word! Concluding Remarks A currency change could neutralize the domestic cash hoards of counterreform elements within the borders of Ethiopia. It may also have the concomitant benefits of stabilizing domestic prices and birr exchange rate.
A significant reduction in capital flight may also be another beneficial outcome. The rumor currently doing rounds in Addis may indeed have an element of truth in it, and, more importantly, it would be instrumental in forestalling a physical confrontation with the rebels in Mekele, who unwisely are trying to use the Tigrean people whom they are holding hostage, as a human shield. After all, the whole thing may turn out to be a currency change rumor which may materialize, all to the good. However, stringent surveillance over suspected cash hoard sites should be conducted to ensure prevention of currency exchange through large numbers of anti-reform clique supporters.
Herald December 30/2018
By Teklebirhan Gebremichael
