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It is a shocking surprise but the US dollar has actually gone down on the black market over the past week, Capital learned.
People who closely follow the parallel market, have noticed the trend and some experts think it may be a precursor of significant change.
According to Capital’s observation the market has been saturating with dollars every day this week. For instance a week ago the rate stood at 37 birr per USD, while the legal market or bank exchange rate is 27.27 birr to one USD.
The difference between the parallel market and the legal one had been over 36 percent, a record high on the exchange market.
People who trade on the black market that Capital interviewed said that they could not understand the reason for the sharp drop in the exchange rate over the past seven days. Right now they are not interested in buying the dollar or other main hard currencies because they can’t currently speculate about the market’s trend.
According to the information that Capital obtained from parallel market traders, who refused to be named, they are afraid that hard currency they bought will devalue.
Now there is actually a larger supply of dollars on the black market than demand, they added.
According to the traders the rate of a USD went down to 32 birr on Friday July 6, from 34.50 birr a day before and to 28 birr on Saturday. “We have observed significant decrease every day,” one of the illegal hard currency buyers told Capital. “We don’t know the reason this happened,” he added.
According to the market actors on Friday June 29 the rate was 37 birr for a USD. That rate began to drop last Saturday.
The hard currency shortage, the stagnation of export earnings and illegal market or contraband had been the main reason for the rising black market rate besides for those who use it for illicit means or collect hard currency in relation to past political instability in the country.
Observers stated that some the FDIs’ were also involved in collecting foreign currency from the parallel market, which caused the black market rate to skyrocket.
Before the government devaluated the birr by 15 percent in October 11, 2017 the black market was stood around 27 birr for a USD, while immediately after the devaluation it escalated to 33 birr. For a long time it was about 25 percent higher than the legal market. However in the past few months the parallel market frequently increased and the gap with the bank rate widened up to 36 percent.
Experts who closely followed the sector commented that the black market reduction in the past week is a result of relative stability in the country and more hard currency has come into the country since the new PM took office.
“Even though there are several reasons for the reduction of the rate of the parallel market, the government has been working to control illegal business or contraband and illegal hard currency flow via border areas at the eastern, southern and western parts of the country,” experts explained.
“The government’s empowerment to control contraband has forced illegal actors to reduce trading foreign currency from the black market,” experts explained.
Regions like Oromia are also working strongly to control the contraband goods entering the county illegally.
This trade has been one of the sources of conflict along the Somali and Oromia regions. The former PM Hailemariam Desalegn stated that the conflict and the displacement of Ethiopians from the Somali region by the regional special force (Leyu Hayl) are directly related with the contraband business that the Oromia tried to control.