Ethiopia's radically reformist new prime minister is introducing policies that appear to be allowing letters of credit (L/Cs) to flow after years of traders being unable to obtain them due to foreign currency shortages.

Prime Minister Abiy Ahmed has declared a "hard currency amnesty", encouraging those hoarding hard currency to deposit it in banks.

L/Cs approved

As well as stimulating confidence in the Ethiopian economy, the amnesty is helping to close a once yawning gap between the official and black market exchange rates for the Ethiopian birr.

Cash is reportedly pouring into banks, and local businesses say foreign currency is finally flowing into some segments of the economy that had ground to a halt.

Businesses in the capital city of Addis Ababa said L/Cs, which banks had been unable to process for months, were finally being approved.

Exchange rate stable

Analysts say the birr is now trading on the black market at around 28 to the US dollar, close to parity with the official rate and 25 per cent firmer than when Ahmed became prime minister in April.

The government has not yet said whether it will loosen its grip on foreign exchange access and the exchange rate itself.

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