Economic Rational of Current Demonetization Practice of Ethiopia and its Challenges

Abstract

Governments in developing country like Ethiopia demonetize its currency for economic and political reasons. Hence, the main objectives of this paper is to assess the economic rational of demonetization in Ethiopia and its existing challenges. The study employed secondary data obtained from IMF, FAO, ITO and NBE   from 2006 to 2020 and observed facts .The data is presented in line graph and bar graph and also analyzed by using descriptive statistics. The finding of this paper reveled that running inflation, increase in public debt, prevalence of high corruption, high budget deficit, low rate of saving and low tax ratio are some of important rational to apply currency  demonetization in Ethiopia. It is also found that the success of meeting its stated objectives in Ethiopia is challenged by presence of predatory institutions, existing political unrest, desert locust outbreak, internal displacement and rising trend Covid-19 pandemic and weak implementation capacity of government officials and experts. This paper advice that government should strengthen implementation capacity of government officials, ensuring accountability and transparency among executive bodies and experts and finally the government due attention in building strong developmental institutions before applying financial move like demonetization for the future.

Keywords: Demonetization, economic rationales, challenges, Ethiopia

DOI: 10.7176/RJFA/12-15-03

Publication date:August 31^st 2021