The Re-Establishment of the National Monetary and Banking System in Ethiopia, 1941-1963

This article describes and analyses the reconstruction process of the Ethiopian banking system as well as the reorganisation of the monetary setting of this country. Actions were begun in 1941, when the Italy's short-lived colonial empire came to an end as a result of the liberation of Ethiopia during the second World War. The Emperor, returned to his country, intended to pursue in the monetary and financial field the same objectives on which the innovative policies he had introduced during the early 1930s were based: the creation of a Ethiopian-owned state bank and the establishment of a national monetary system. However designs for the achievement of Ethiopian monetary sovereignty and for the contextual creation of an issuing bank were strongly opposed by British authorities, who wanted to keep Ethiopia within the East African Currency Board area. A compromise solution was, however, found calling for a state-owned commercial bank. The State Bank of Ethiopia was, therefore, established in 1942 as corporate entity, by imperial proclamation, its capital being fully subscribed by the Ministry of Finance. Later, in 1945, it was possible, thanks to the US financial and political support, to give way to the national monetary system, based on the Ethiopian dollar, its parity being set at 5,52 grains of fine gold. The State Bank of Ethiopia besides functioning as a commercial bank was accordingly empowered to issue notes and coins and to manage monetary policy. This institution had performed well and had contributed significantly to the economic development of the country for two decades, but in the early 60s the need to improve the financial system by modifying its structure become evident. A two-tier banking system was, therefore, adopted in 1963, and implemented at the beginning of the following year, by splitting the State Bank of Ethiopia into two separate institutions: a pure central bank and a public-owned national commercial bank