Ethiopia's Council of Ministers has given the green light to a comprehensive banking reform package, aimed at transforming the country's financial sector. The National Bank of Ethiopia (NBE) Proclamation and the Banking Business Proclamation introduce significant changes, including a legal framework for a central bank digital currency (CBDC) and opening the banking sector to foreign investment.

The draft proclamations, prepared by the NBE, will now be sent to the House of People's Representatives for review and ratification. This move aligns with Ethiopia's Homegrown Economic Reform Agenda, which aims to revitalize the country's economy.

The NBE Proclamation establishes a Monetary Policy Committee to strengthen monetary policy and ensure monetary stability. It also sets up a National Financial Stability Committee to protect the overall soundness of the financial system. Additionally, the proclamation provides the legal foundation for a CBDC, allowing Ethiopia to consider digital currency options to align with global trends.

The Banking Business Proclamation liberalizes the banking industry in Ethiopia, enabling foreign investors to establish branches or invest in existing domestic banks. This move is expected to bring in new capital and expertise, boosting the country's financial sector.

The new proclamations incorporate legal instruments as forms of regulation, including the formulation of immediate corrective measures for troubled banks and resolution powers vested in the NBE to address under-performing institutions. A regulatory sandbox has also been created to test innovation in financial services, spurring development and growth.

With these reforms, Ethiopia is poised to enter a new era of financial stability and innovation, with the potential to transform its economy and improve the lives of its citizens.