According to Ethiopian media reports, the Commercial Bank of Ethiopia updated its exchange rate on August 2, and the current rate is 83.94 birr to 1 US dollar. This is the third decline in the exchange rate since the new foreign exchange policy was announced on July 31. The speed of the exchange rate changes has made life miserable for locals, who say that if things continue this way, they will soon be unable to afford even injera, Ethiopia's traditional staple food.

In addition, it was reported that on August 1, the Addis Ababa City Trade Bureau sanctioned 387 businesses, saying they had used macroeconomic reforms, including the relaxation of foreign exchange controls and devaluation, to raise prices unreasonably. The bureau's head accused the businesses of maliciously raising prices and failing to post clear price lists. The head also warned businesses that more forceful measures would be taken if unreasonable or untimely price increases continued.

Although the Addis Ababa City Trade Bureau did not detail the sanctions against the businesses, it said that violating pricing guidelines could lead to the revocation of licenses, and it considered the enforcement aimed at protecting consumers' interests during the economic turmoil.

However, this round of foreign exchange policy by the Ethiopian government has drawn dissatisfaction from many quarters, including the Ethiopian Citizens for Social Justice, an opposition party in Ethiopia. The party criticized the Ethiopian government's "untimely" foreign exchange reform and warned that Ethiopian citizens could face economic hardship.

It also said that the solution of letting the market determine the exchange rate is very dangerous for the Ethiopian state, because Ethiopia's production sector is limited and it relies heavily on imports. By any standard, it is untimely, and the Ethiopian government needs to bear full responsibility for the economic, social and political consequences that the new monetary policy has produced.

It is understood that earlier, on July 31, Ethiopia announced a major revision of its foreign exchange system, carrying out a series of transitional measures. The Ethiopian government believes that foreign exchange reform is crucial for addressing the severe foreign exchange shortage, improving export competitiveness, attracting foreign direct investment and supplementing a number of other macroeconomic reforms.

However, not long after the policy was released, the exchange rate of the Ethiopian birr fell, and it has now fallen to 83.94 birr to 1 US dollar. This has also caused discontent among local residents in Ethiopia. This is because the depreciation of the national currency has increased the cost of imported goods, which has in turn pushed up local prices that were already high.

Ethiopia mainly imports automobiles, petroleum, edible oil and chemical fertilizers, among other things, but at the same time Ethiopia's economy relies mainly on agriculture, with farmers and herders accounting for more than 85% of the total population. As a result, demand for chemical fertilizers and the like is high, and the increased cost of chemical fertilizers also increases planting costs.

Although the Ethiopian government has said it will minimize the price impact on basic imported goods such as fuel, chemical fertilizers, medicines and edible oil through temporary subsidies and price changes. However, prices of various consumer goods in Ethiopia are currently rising sharply, with some goods increasing by 50%-100%, putting great pressure on local consumer groups, and the planting costs of coffee and other crops will also increase.

In addition, the agricultural industry is highly dependent on weather conditions, and once it encounters severe weather, it will lead to reduced production. Earlier, on July 29, a landslide occurred in the Central Sidama Zone of Sidama Region, an important coffee-producing area in Ethiopia, causing 6 deaths and economic losses. Moreover, the country has been experiencing heavy rainfall recently, and Ethiopia's National Disaster Risk Management Commission (NDRMC) has already issued a risk warning for the Sidama area.

At the same time, Ethiopia relies heavily on maritime shipping to import and export goods, but the situation in the Red Sea remains severe; in July, 7 ships were still attacked, and the number of shipping vessels at Djibouti's ports has decreased, which has greatly increased shipping costs. As a result, Ethiopia's export situation is not optimistic, and domestic prices remain high.

At present, local coffee and other traders will accelerate the sale of their inventory, all because the local currency has depreciated and they sell through the international market to earn foreign exchange. Moreover, the depreciation of the Ethiopian birr helps improve the international competitiveness of Ethiopian coffee and is beneficial to exports in the short term.

However, some industry insiders believe that the current policy is indeed favorable to coffee exports and has accelerated coffee sales and exports, but with unstable climate and continuous conflict within the country, coffee inventory will be greatly reduced in the future, and there may be a problem of insufficient inventory. In addition, the government will provide temporary subsidies during the current period of economic reform, but will not subsidize over the long term; in the future, as costs rise, the selling prices of coffee and other crops in the new season will increase, but at the same time, price increases will reduce international buyers' purchases of the country's products.That is, the current policy can indeed benefit multiple foreign-exchange-generating sectors such as coffee, sesame, beans and flowers in the short term, but in the long run it will be detrimental to development.