Ethiopia Prepares to Regulate Cryptocurrencies Amid Rising Illegal Transactions

Ethiopia’s Financial Intelligence Service (FIS) is actively preparing to regulate virtual currencies, despite the ongoing ban on cryptocurrency transactions within the country. The National Bank of Ethiopia (NBE) has prohibited the use of cryptocurrency for payments, and individuals found violating this regulation may face legal consequences, including fines and imprisonment. All digital and virtual currency transactions are prohibited unless otherwise agreed upon by the NBE.

The FIS is collaborating with international organizations, including the United Nations and regional anti-money laundering bodies, to establish regulatory and investigative frameworks. This effort is driven by regional security concerns, particularly the use of virtual currencies by terrorist groups to bypass traditional financial systems. Financial investigators are being trained to detect and tackle illegal crypto activities such as money laundering and tax evasion more effectively.

Ethiopia’s ban on virtual currency trading is still on, and the country’s Financial Intelligence Service (FIS) has developed regulations to regulate cryptocurrency transactions. The move is supposed to prevent money laundering and the funding of terrorism, and to bring those steps in line with the international financial standards. As a result, the initiative is a reflection of Ethiopia’s attempts to balance innovation and economic stability.

The FIS is working on a system to oversee and control the operations of virtual currencies. It follows reports of surging illicit crypto transactions and a move by authorities to tighten oversight. Regulations will concentrate on tracking suspicious activity and supporting compliance with laws of a financially related nature. Ethiopia outlawed cryptocurrencies in 2022, making the birr the only legal money. The government recognized that with the proliferation of the digital economy, enforcing such a ban is not an easy thing to do.

Cryptocurrencies are taking off worldwide, and so is Ethiopia’s effort to regulate them. They want to restrict their risks without curbing the tech progress. Authorities will require crypto platforms to register and will also oblige them to report suspicious transactions. This follows the rules set down by the Financial Action Task Force (FATF), an international organization that combats money laundering.

The FIS is also studying CBDC models to promote financial inclusion. It could be a digital bill that would simplify paying each other, and with that, reduce the use of cash, especially in rural areas. An NBE official said a CBDC presents one on efficiency and transparency. Pilot programs are being considered after Nigeria launched its eNaira in 2021.

Despite the ban on cryptocurrency by Ethiopia, crypto use is on the rise as the tech-savvy youth and business are pushing for crypto use as a means of payment. Now, the concern for taxation and black market fraud is also with crypto. The second regulation tries to control these activities while encouraging a safe environment for safe innovation. Enforcement will involve stricter penalties for unlicensed crypto operations.

The cautious approach of the government is explained by Ethiopia’s foreign currency shortages and inflation. Authorities want to regulate it by way of cryptocurrencies, while protecting the financial system, and attracting foreign investment. The FIS will soon start public consultations and wrap up the regulations by mid-2026.

Ethiopia's approach reflects a shift from a total ban to a more nuanced regulatory framework that recognizes the potential of blockchain technology and digital assets while maintaining the security of the financial system. The government has already passed framework legislation for implementing digital currency at central banks, further evidence of this strategic shift. Although crypto trading remains prohibited, Ethiopia's relatively favorable energy costs have attracted foreign investment in crypto mining.

By preparing to regulate virtual currencies, Ethiopia aims to combat financial risks associated with their illegal use, including money laundering and terrorism financing. This proactive approach positions Ethiopia to adapt to global trends in digital finance while safeguarding its financial system.