Arnaldo Mauri

Eritrea's early stages in monetary and banking development

Eritrea is listed among those countries of Africa, whose independence has been lately achieved. Notwithstanding the monetary and banking history of Eritrea goes back to the Italian colonial settlement on the Red Sea shore of 19th century. The paper offers an overview of the early stages of the Colonys monetary development up to mid-thirties and of the problems met in the substitution of Italian currency for the traditional money. A branch of the Bank of Italy was established in Asmara in 1914 and this event marked the first introduction of banking into the country. The Asmara branch was followed by branch offices of the Italian central bank in the four main centres of the Colony. The Bank of Italy was involved also in commercial banking and fulfilled the functions of banker and fiscal agent for the colonial government as well. Furthermore it worked to promote the creation of local banks and the take-off of the Eritrean banking system. Due attention is given to attempts of the colonial government to develop a suitable agricultural credit system in Eritrea and to the critical issues involved

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.

The Re-Establishment of the Ethiopia's Monetary and Banking Systems

The study is concerned with a crucial period of the banking history of Ethiopia, almost untouched so far by the specializing literature, in which the banking industry was affected by important changes. The paper describes and analyses the reconstruction process of the banking system and the reorganization of the monetary setting in Ethiopia started in 1941, when the Italian colonial rule came to an end and the country regained independence, during World War II. The terminal date of the study is the beginning of 1964, when a one-tier banking system, based on a state-owned financial institution, the State Bank of Ethiopia, gave way to a two-tiers banking system. The monetary banking reform in Ethiopia after liberation in 1941 was an event logical, inevitable and predictable. Different paths, however could had be followed at that moment. The choice in money matter was to establish a national monetary unit, the Ethiopian dollar, instead of keeping the country inside the East African shilling area. On the other hand, as far as concerns banking, it was opted for establishing a state-owned financial institution enjoying a monopolistic position in the credit market rather than for setting up a system of private banks, possibly expatriate.