This commentary is offered as a rejoinder to The Reporter’s recent article, “Behind the Currency Curtain,” which examined the hidden forces shaping Ethiopia’s foreign exchange system.
Ethiopia’s foreign exchange shortage is more than a balance-of-payments gap. It is a structural trust deficit — and one that continues to block a major source of supply hiding in plain sight: the deposits, savings, and investment allocations of Ethiopia’s global diaspora.
Exports, tourism, and foreign direct investment are essential, but they are multi-year undertakings. The most immediate, scalable FX supply lies in moving from consumption transfers to capital engagement — mobilizing diaspora-held foreign currency into the formal financial system in ways that strengthen reserves and expand the investment base.
Why the Capital Stays Out
For most Ethiopians abroad, formal engagement with the banking system at home stops at basic remittances. The overwhelming majority have no active accounts, deposits, or investments in Ethiopia’s formal sector. This is not apathy — it is a rational decision shaped by past experiences, perceived risk, and a lack of credible options.
In practice, diaspora capital flows through two dominant channels:Informal networks — offering competitive rates, flexible access, and familiar intermediaries, even without legal protections.
And Overseas holdings—where funds remain in foreign banks and regulated investment products.
When the formal system delivers secure, high-quality channels with strong protections and attractive returns, capital will move. In global finance, well-structured economic incentives consistently outperform hesitation — and the same will hold true for Ethiopia’s diaspora. The key is in knowing how to design those incentives for Ethiopia’s unique trust landscape.
A Psychological Gap, Not Just an Economic One
Ethiopia’s forex shortage is often described in purely economic terms: demand far outpaces supply. But diaspora capital is different. It is already active, already circulating in the global economy, and already interested in contributing to Ethiopia — if the formal system can credibly receive and protect it.
This is where psychology matters. The parallel market does not replace the formal system — it reflects where the user experience and incentives are misaligned.
What the Parallel Market Reflects
Historically, informal networks won on speed, access, and rates. But with the rise of new digital transfer apps and the recent intergeneration system linking Ethiopian banks, formal channels can now match informal networks on transfer speed in many cases. The real gaps, however, lie in access and trust—unrestricted use of funds once they arrive, more competitive exchange rates, and investment products that carry the same safeguards diaspora clients expect in regulated markets. Until these gaps are closed, capital will remain outside the system, even if the transaction itself is instantaneous. Addressing them requires an operational design that both meets global compliance benchmarks and fits Ethiopia’s institutional realities.
Signals Are Not Systems
Recent reforms — from the launch of the Ethiopian Securities Exchange to updated repatriation directives — are positive signals. But signals alone do not move capital.
Global diaspora investors, like institutional funds, look for: reliable, verifiable onboarding and account management; transparent, enforceable repatriation; correspondent banking integration, and regulated, auditable investment structures.
Delivering these is not about inventing from scratch — tested operational models already exist and have been adapted successfully in other markets, including large diaspora economies like India, where structured products and bank-led channels have mobilized billions in foreign currency deposits.
But each market’s regulatory environment, trust dynamics, and institutional capacity are different — and Ethiopia will require its own tailored architecture to make these models work. That architecture exists, but it can only be deployed by institutions working with the right operational partners. The question is which Ethiopian institutions will move first.
Beyond Remittances
Remittances sustain households. Diaspora capital can strengthen reserves, fund infrastructure, and build long-term resilience. The difference lies in the channel through which the money moves.
Support is about sentiment. Capital is about strategy. The moment Ethiopia’s formal system reflects that strategy with credible, usable structures, the money will follow — not by force, but by design.
What We’re Missing Is Not Dollars — It’s Systems
The money exists. The question is whether the system is ready to receive it.
Aligning Ethiopia’s institutional capacity with global compliance standards and diaspora expectations could unlock the fastest, most reliable addition to FX reserves available today. But without the right architecture — and the operational partners to execute it — the opportunity will remain theoretical.
Conclusion
The diaspora has both the liquidity and the willingness to contribute beyond remittances. The system must demonstrate its ability to receive and protect that capital. The blueprint is there, but knowing how to adapt and deliver it for Ethiopia is the real test.
EyasuTheodros is a US-licensed financial advisor serving global diaspora clients. He provides investment and retirement guidance to professionals across the US and advises financial institutions on diaspora behavior, trust dynamics, and inclusive financial system design. He can be reached at [email protected].
Contributed by Eyasu Theodros
