The birr's value against the US dollar and other currencies changes over time. Understanding the main drivers helps you make better financial decisions.
Supply and Demand
- Demand for birr: When foreigners invest, tourists spend, or diaspora sends remittances, demand for birr can rise, supporting its value.
- Demand for foreign currency: Importers, travelers, and businesses needing USD or EUR create demand for foreign currency. If demand exceeds supply, the birr may weaken.
Remittances
Remittances are a major source of foreign exchange for Ethiopia. When diaspora sends more money home, it increases the supply of USD/EUR in the market, which can strengthen the birr or ease pressure on it.
Trade Balance
- Imports vs. exports: Ethiopia imports fuel, machinery, and consumer goods. Exports include coffee, flowers, and garments. A trade deficit (more imports than exports) can put downward pressure on the birr.
- Commodity prices: Coffee is a key export. Higher coffee prices can improve the trade balance and support the birr.
National Bank of Ethiopia (NBE) Policy
- Reference rate: The NBE sets a reference exchange rate. Commercial banks trade within a band.
- Intervention: The NBE may buy or sell foreign currency to stabilize the market.
- Interest rates: Higher rates can attract foreign capital and support the birr.
Inflation
High inflation erodes the birr's purchasing power. If prices rise faster in Ethiopia than abroad, the birr tends to weaken in real terms.
Political and Economic Events
Reforms, elections, conflicts, or global shocks (e.g., pandemic, commodity price swings) can affect investor confidence and the exchange rate.
For You
When sending remittances or exchanging currency, compare rates across providers. Small differences add up. Use Birr Value to see how banks compare.