Ethiopia’s National Bank has officially banned birr-paired Peer-to-Peer (P2P) crypto transactions, labeling them as illegal under current regulatory standards. The move, announced on Friday, aims to address the growing risks associated with unregulated digital assets, including volatility, fraud, and foreign exchange manipulation. The bank has left a narrow exception, allowing such transactions only with explicit authorization from its own institution.

Regulatory Concerns and Public Advisories

The National Bank of Ethiopia cited significant volatility and operational risks in the digital asset markets, warning the public about the dangers of unregulated platforms. ‘These markets are often characterized by significant volatility, exposure to foreign exchange price manipulation, fraud and scams, operational risks, and the absence of key safeguards such as Anti-Money Laundering and Combating the Financing of Terrorism protections commonly found in regulated financial systems,’ the bank said in a statement.

The institution noted that P2P platforms and crypto exchanges have faced similar challenges globally, reinforcing the need for stricter oversight. While the global appetite for digital assets continues to rise, Ethiopia’s central bank is taking a cautious approach, emphasizing the need for informed decision-making by the public.

Broader Economic Reforms and Regulatory Shifts

This latest move is part of a series of regulatory changes the National Bank of Ethiopia has introduced in recent months. These measures align with the broader economic reforms launched by the ruling Prosperity Party in July 2024, which included the devaluation of the Ethiopian Birr by approximately 200 percent. The devaluation was aimed at stabilizing the currency and addressing inflationary pressures, but it has also led to widespread public discontent over rising living costs.

Bank Governor Eyob Tekalegne recently participated in a televised election debate, representing the ruling party. He defended the economic and financial system, asserting that it is performing well despite public concerns about the cost of living. His appearance highlights the central bank’s role in both policy implementation and political engagement.

The National Bank has also stated that it is working on developing a thorough regulatory framework for digital assets. This includes consultations with global regulators and local stakeholders to ensure ‘safe and orderly participation in emerging digital asset technologies.’

Implications for Ethiopia’s Digital Economy

With Ethiopia’s digital economy growing, particularly in urban centers, the ban on unregulated crypto transactions could have significant implications. Many individuals and businesses have been using P2P platforms to bypass traditional banking systems or access foreign currencies more easily. The new restrictions may limit these activities, potentially affecting remittances and cross-border transactions.

Analysts suggest that the move reflects a broader trend in African nations grappling with the challenges of regulating cryptocurrency. Nigeria, for example, has imposed similar restrictions in the past, citing similar concerns about financial stability and fraud. Ethiopia’s approach, however, is notable for its emphasis on developing a structured regulatory environment rather than outright prohibition.

The National Bank has not provided a specific timeline for the implementation of its proposed framework, but officials have indicated that the process is ongoing. This development comes at a time when many African countries are evaluating the role of digital assets in their economies, balancing innovation with financial security.

For now, users of P2P crypto platforms in Ethiopia must seek explicit approval from the National Bank to conduct birr-paired transactions. This requirement is expected to slow down the use of such platforms until a clearer regulatory path emerges.