The Foreign Exchange Directive No. FXD/04/2026, issued by the National Bank of Ethiopia, represents a significant legislative pivot intended to modernize and liberalize the nation's foreign exchange regime. This directive serves as a comprehensive amendment to the previous Foreign Exchange Directive No. FXD/01/2024, specifically designed to enhance the ease of doing business and foster greater confidence among the international business community. By relaxing the administrative constraints surrounding foreign currency account opening, utilization, and credit management, the National Bank seeks to incentivize foreign account holders and ultimately bolster the country's foreign currency earnings. The legal authority for this instrument is derived from the National Bank of Ethiopia Establishment (Amended) Proclamation No. 1359/2025, specifically under Articles 6 and 39, which grant the central bank broad powers to regulate the financial sector.

Enhancements in Market Mechanisms and Export Retention

A cornerstone of this directive is the formal integration of forward exchange dealings into the Ethiopian financial system. Under Article 3.1, banks are now explicitly permitted to apply forward exchange rates alongside existing spot transaction rates, allowing transacting counterparties to agree on an exchange rate for settlement at a future date. This mechanism is intended to mitigate risks associated with exchange rate fluctuations and provide a more predictable environment for international trade. Furthermore, the directive significantly improves the position of service exporters—defined as those generating inflows from sectors such as tourism, telecommunications, and financial services—by granting them the right to retain 100 percent of their export proceeds in a foreign exchange retention account for an indefinite period. This policy shift moves away from mandatory surrender requirements, providing exporters with total control over their foreign currency liquidity.

Modernisation of Account Administration and Accessibility

The directive introduces several measures to streamline the administrative process for foreign currency accounts and international payment instruments. Article 3.3 removes the previous visa and ticket requirements for the issuance and loading of internationally recognized prepaid or debit cards, allowing banks to service all foreign currency account holders based solely on their instructions. Accessibility for foreign investors is also enhanced, as Foreign Direct Investment (FDI) companies are now empowered to open foreign currency accounts at their chosen bank by presenting a simple application letter, a Foreign Investment License, and a TIN certificate, effectively removing the requirement for an individual National Bank of Ethiopia approval letter. Additionally, the regulatory floor for market entry has been lowered by the complete removal of the minimum amount of foreign currency required to open a foreign exchange account.

Liberalisation of Capital Flows and External Credit

A major shift in delegated authority is evident in the management of external loans and profit remittances. Under Article 3.11, the responsibility for approving external loans, whether in cash or kind, as well as suppliers’ credit and repayment schedules, has been transferred from the National Bank of Ethiopia directly to commercial banks. While companies must still adhere to specific debt-to-equity ratios and banks must provide monthly reports to the central bank, this decentralisation significantly reduces bureaucratic delays. Similarly, banks are now authorized to approve the remittance of net profits and dividends for recognized and registered foreign investments without prior central bank intervention, provided the customer signs an undertaking that the amount does not exceed their earned dividends for the period. To support private sector credit, banks are further permitted to offer foreign exchange loan guarantees up to 10 percent of their total capital, with such guarantees being governed by single borrower limit regulations.

Oversight of Forex Bureaus and Individual Remittances

The directive implements specific prudential and operational rules for Independent Forex Bureaus (IFBs) to ensure market stability while encouraging growth. Article 3.17 outlines a phased release of the 30 million Birr security deposit required for IFBs, with half being released after six months of operation and the full amount after one year. To prevent currency hoarding, IFBs are subject to a cash holding limit of 25 percent of their paid-up capital at the end of each month, with any excess required to be sold to banks within five working days. On an individual level, the directive demonstrates a socio-economic focus by allowing resident Ethiopians to transfer up to USD 3,000 for subsistence family support abroad upon justification. Furthermore, banks are authorized to facilitate advance payments for medical and educational services up to USD 20,000 per case without requiring a visa or ticket, provided valid invoices or proof of payment requests are presented.

Regulatory Thresholds and Verification Requirements

Finally, the directive significantly relaxes the reporting requirements for physical currency movements and specific service payments. The requirement for a customs declaration for cash notes exceeding USD 10,000 has been removed for individuals depositing funds into foreign exchange accounts, conducting exchanges at forex bureaus, or entering the country through borders. This relaxation is mirrored in the utilization of funds, as account holders may now use their balances to cover foreign service payments for themselves, their spouses, and their children, provided they can confirm the family relationship and provide underlying invoices. For the export sector, the validity of import applications is standardized at 120 calendar days, though banks maintain the discretion to extend this period for good cause. Collectively, these amendments, which entered into force on 12 February 2026, represent a decisive step toward a more market-driven and accessible foreign exchange environment in Ethiopia.