What Is the ETB (Ethiopian Birr)?

The Ethiopian birr, the national currency of the Federal Democratic Republic of Ethiopia, is issued by the National Bank of Ethiopia, which manages its value through a dirty float. Each birr subdivides into 100 santims. The Ethiopian birr takes its name from a local word for silver.

The currency code of the Ethiopian birr is ETB, and the symbol used in commerce is "Br". As of August 2021, 1 ETB is equal to approximately USD $0.02.

Key Takeaways

  • The Ethiopian birr (ETB), the national currency of the Federal Democratic Republic of Ethiopia, is issued by the National Bank of Ethiopia, which manages its value through a dirty float.
  • In the foreign exchange market, the birr is considered to be an exotic currency or thinly traded currency.
  • The first recorded currency was the Maria Theresa thaler, named after the Empress of the Holy Roman Empire.

Understanding the Ethiopian Economy

Ethiopia, considered one of the earliest sites of Homo sapiens occupation, lies on the Horn of Africa. The region avoided European colonialism through a series of Muslim rulers and hereditary monarchs for centuries. In 1987, rebels overthrew the ruler, creating the communist-backed People's Democratic Republic of Ethiopia, which was itself overturned in 1991. Since that time, the Ethiopian People’s Revolutionary Democratic Front (EPRDF) has existed.

Since 1994, the National Bank of Ethiopia has managed the value of the birr against other currencies using a dirty float system. Under this policy, the central bank periodically intervenes in foreign exchange markets to change the birr's valuation if it deems it to be over- or undervalued.

In 2008 and 2011, the nation faced annual inflation rates of 44% and 32%, respectively. Critics point to monetary policy as a major driver of the inflation. As of 2021, the Republic has a fast-growing, non-oil dependent economy. Exports consist of agricultural products and gold.

In 2017, a trade deficit that generated limited availability of foreign exchange in the country drove the central bank to devalue the birr by 15%, while also adjusting the primary interest rate to balance potential inflationary pressure from the devaluation. The move came at the urging of The World Bank.

The nation has a rocky history of human rights abuses. Any wealth from years of positive economic growth has not been distributed evenly. These issues led to public protests in 2016, where the police killed a large number of people. The government declared a state of emergency that lasted nearly a year before ending briefly and being reinstated in Feb. 2018.

According to World Bank data, Ethiopian gross domestic product (GDP) grew by 8.36% in 2019, respectively. Over the same period, inflation was 15.84%.

History of the Ethiopian Birr

Named after the Empress of the Holy Roman Empire, Ethiopia, known as Abyssinia at the time, officially adopted the Maria Theresa Thaler as its national currency until 1894. The thaler was equal to 16 piastres or guerches. It was replaced with the talari or Melenik dollar, named after the Emperor Melenik II.

In 1905, Menelik II and a European banking group established the Bank of Abyssinia, which introduced banknotes into circulation in 1915. In 1931, Ethiopian Emperor Haile Selassie purchased and restructured the Bank of Abyssinia, creating the National Bank of Ethiopia. At this time, the bank subdivided the thaler into 100 centimes. Also in 1931, the Emperor requested that the country be called Ethiopia instead of Abyssinia via the new constitution.

Italy's occupation of Ethiopia led to the introduction of the Italian lira in 1936. The arrival of British forces in 1941 launched the East African shilling, which supplanted the lira and became the nation's legal tender between 1941 and 1945.

The current-day birr was re-established as the country's legal tender in 1945 at a rate of 100 cents. Banknotes used the label of "Ethiopian dollar" as the official English translation of the currency until 1976. Then Ethiopia declared its national money the birr (and not the dollar) in all languages. Therefore, even when translating, the birr just means birr.

Example ETB is Forex Markets

In the foreign exchange market, the birr is regarded as an exotic currency, meaning it tends to be thinly traded and is not used much in global financial transactions. Indeed, there is not a lot of demand for the birr outside of Ethiopia's borders.

Still, as an example, assume that the USD/ETB exchange rate is 29.65. This means it cost Br29.65 to buy US$1.

If the rate increases to 33, that means the birr has lost value to the U.S. dollar (USD) because it now costs more birr to buy a dollar. If the rate were to decline to 27, where it traded in late 2017, the birr would be strengthening against the USD, since it would cost fewer birrs to buy a USD.

Between 2014 and 2019, the USD/ETB has continually increased, indicating USD strength against the birr and/or birr weakness relative to the USD.

To determine how many U.S. dollars it takes to buy one birr, divide one by the USD/ETB rate. In this case, divide one by 29.65. The result is 0.0337. This is the ETB/USD rate, meaning it costs a little more than US$0.03 to buy one birr.