Introduction to Ethiopia’s New Foreign Exchange Trading System
The National Bank of Ethiopia (NBE) has launched an automated foreign exchange trading system that promises to transform how commercial banks transact in the interbank currency market. This platform, integrated into the Ethiopian Securities Exchange’s (ESX) trading infrastructure, allows licensed banks to quote, match, and settle forex transactions electronically and in real time.
How the System Works
The system replaces the outdated phone-based and manual dealing system that had long been a fixture in the highly controlled forex market. Participation at the platform is limited to licensed commercial banks and vetted institutions, ensuring that trades remain within the bounds of supervisory control while pushing the forex regime toward a more credible, market-based mechanism. Governor Eyob Tekalegn (PhD) praised the platform as “a decisive move toward a transparent and rules-based market where exchange rates are set by real-time supply and demand.”
Key Features of the System
By allowing banks to submit market and limit orders through secure logins, the platform leverages algorithmic matching principles, typically price–time priority, to determine the most competitive rates. The automation also anonymises counterparties until trades are confirmed, shielding banks from premature disclosures and negotiation bias, a hallmark feature of advanced platforms like Bloomberg’s Bmatch used in developed and emerging markets alike.
Benefits of the System
The Governor called the system’s rollout “a pivotal milestone in modernising the country’s foreign exchange infrastructure.” The technology is not only meant to improve price discovery and narrow spreads between buying and selling prices, but also hoped to streamline settlement through the Central Bank’s real-time gross settlement (RTGS) framework. The inclusion of algorithmic trading capabilities signals a major leap in sophistication, enabling banks to automate execution strategies, while the Central Bank enhances oversight through full access to live order books and transaction logs.
Regulation and Oversight
The platform is governed by a suite of updated rules, including the Forex Market Guidelines, Exposure Limits Directive, and a new Code of Conduct. According to the NBE, these regulations are designed to ensure systemic soundness, minimise operational risks, and reinforce regulatory discipline in the midst of wider financial sector liberalisation.
Ethiopia Joins the Ranks of Other Countries
Ethiopia now joins a growing list of African and emerging-market economies that have adopted electronic interbank forex platforms. Countries such as Kenya, Nigeria, and Ghana have implemented similar systems over the past decade, with varying degrees of central bank involvement and exchange rate flexibility.
Conclusion
The launch of Ethiopia’s automated foreign exchange trading system marks a significant step forward in the country’s efforts to modernize its financial sector. By providing a transparent, rules-based, and efficient platform for foreign exchange transactions, the system is expected to improve the overall stability and attractiveness of the Ethiopian economy. As the country continues to liberalize its financial sector, the new system is likely to play a key role in promoting economic growth and development.
