Currency Revamp Spurs Rush for New Bank Accounts in Ethiopia

Ethiopia’s effort to stamp out counterfeiting by introducing new currency notes is pulling people who’ve never had a bank account into the financial system.

At least 1.3 million previously unbanked Ethiopians have handed in their two-decade-old banknotes over the past month since the demonetization process was started, Prime Minister Abiy Ahmed told lawmakers on Monday. In exchange, they were given a bank account from which they can draw the new notes. The regulator is trying to deter cash hoarding that enables corruption and illegal trading to thrive, and escapes the tax net.

Only 35% of Ethiopian adults held a bank account in 2017, lagging peers such as neighboring Kenya, where the ratio is 82%, according to the World Bank. Over the past year, the number of accounts in the country has increased 31% to 50.7 million, the Prime Minister said.

The Horn of Africa nation of 100 million people is following a process that flopped in India. There steps in 2016 to ban high-denomination currency notes to try weed out cash gained through illegal means backfired as economic growth slowed and millions of daily wage earners lost their livelihoods.

While Kenya’s demonetization process that started last year went smoothly, the equivalent of about $68 million was not returned, according to the central bank. South Sudan is also contemplating demonetization to curb illicit financial flows.

The rush of applications forced the nation’s biggest commercial lender to assign more tellers to only handle money changing at its main branch next to its headquarters in the capital, Addis Ababa. The Commercial Bank of Ethiopia branch gained at least 1,000 customers over the last four weeks, while many others deposited cash in accounts that had been dormant.

“On the first day of the new currency notes, you wouldn’t believe what happened here — everybody came,” said Nebyou Birhanu, who heads digital services at CBE. “The money is coming into the bank.”

Source: Bloomberg

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