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The Financial Sector

Components of the current financial sector are the central bank (National Bank of Ethiopia (NBE)), commercial and specialized banks, insurance companies, Pension and Social Security Authority (PSSA) and saving and credit cooperatives. A number of private commercial banks and insurance companies have emerged and entered the business since 1994 with the issuance of regulations governing the businesses. Currently there are two commercial and one specialized government banks operating competitively with six private commercial banks. In the insurance business there are one government insurance corporation and eight private insurance companies. The National Bank of Ethiopia is the central bank and regulatory authority of financial institutions. It also provides certain commercial bank activities such as holding the accounts of government departments and ministries and facilitating government import letters of credit and foreign exchange business.

1. Currency

The Ethiopian national currency is known as the Birr. The Birr note comprises the following denominations: Birr 1, Birr 5, Birr 10, Birr 50, and Birr 100. A one-Birr note represents one hundred cents of its coinage. Its coinage has also denominations of 1 cent, 5 cents, 10 cents, 25 cents and 50 cents. The sole right of issuing notes and coins in Ethiopia belongs to the National Bank of Ethiopia. The Ethiopian Birr is directly convertible into the US Dollar in the country. It is also convertible into other currencies at cross-rate of US dollar and the other currency. The Birr's exchange rate with the US dollar is determined through foreign exchange auction held weekly by the central bank . In May 2003, the exchange rate was Birr 8.58 per US dollar.

2. Interest Rate Policy
The interest rate policy is aimed at maintaining market-determined rates in accordance with the overall monetary policy of the country. In a gradual move from long time fixed rate of interest to a market rate, the current practice allows banks to set their own rate above and below a certain limit for deposit and lending, respectively.