This article is a contribution from Abenezer Kidane.
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The story of banking is nearly as old as civilization itself, evolving alongside human societies from ancient times to the modern era. From the moment people sought a better way to trade—whether using grains, fabric, or salt—finance became an essential part of daily life. As societies grew, so did the need for a common currency, giving rise to money. But money, even with coins and paper currency, alone wasn’t enough. People needed trust and assurance that their wealth was safe and its value stable.
This need gave birth to central banks. Much like a wise elder guiding a village, these institutions took on the responsibility of regulating the money supply, safeguarding financial systems, and maintaining economic stability. Over the centuries, they became the architects of national economies, earning the title "banks of banks." Beyond their role as financial regulators, they became the cornerstone of modern economic systems, providing nations with the tools to manage their economies—if used properly.
In Ethiopia, one such institution has played a fundamental role in the country’s economic evolution: the National Bank of Ethiopia. While many people associate this bank with the Commercial Bank of Ethiopia, they are two completely different entities. The true power of central banking often goes unnoticed. Yet, behind the scenes, the National Bank has played a defining role in shaping Ethiopia’s economy. In the following series of articles, we will uncover the rich history of this vital institution and explore how it has influenced the nation’s financial landscape.
Modern banking in Ethiopia began in 1906, when the Bank of Abyssinia was established and officially inaugurated by Emperor Menelik II on February 16 of that year. This came as a result of an agreement between the Ethiopian government and the British-owned National Bank of Egypt. With a capital of 1 million shillings, the bank engaged in various commercial activities, such as selling shares, accepting deposits, making payments, and even issuing currency. The Bank of Abyssinia was a private institution, and its shares were sold in cities like Addis Ababa, New York, Paris, London, and Vienna. It also opened branches in key locations, including Harar, Dire Dawa, Gore, and Dembi Dolo, as well as a transit branch in Djibouti.
However, local Ethiopians were initially unfamiliar with banking services, which made it difficult for the bank to attract deposits. On the other hand, Ethiopian-born nationals utilized the bank's services more effectively. In 1931, Emperor Haile Selassie introduced significant reforms to the banking system. The Ethiopian government paid off the shareholders of the Bank of Abyssinia and closed it, replacing it with the Bank of Ethiopia, a fully Ethiopian-owned institution with a capital of 750,000 pounds sterling. This was the first nationally owned bank in Africa, providing both central and commercial banking services to the country.
During the five-year Italian occupation (1936-1941), the Bank of Ethiopia ceased operations, but banking activity in the country expanded especially with the presence of Italian banks, including Banco di Roma, Banco di Napoli, and others. Additionally, the British bank Barclays operated briefly from 1941 to 1943.
After five years of patriotic resistance in collaboration with British Commonwealth troops, the Italian occupation ended in 1941 and Emperor Haile Selassie returned to their throne. Following the end of the Italian occupation and the return of Emperor Haile Selassie in 1941, Proclamation 21/1934 led to the establishment of the State Bank of Ethiopia—which would later become the National Bank of Ethiopia. The State Bank was founded with a capital of 1 million Maria Theresa thalers and was tasked with both central banking and commercial banking functions. By the time it ceased operations in 1963, it had opened 19 branches including branches in Khartoum and Djibouti.
The separation of central and commercial banking operations became necessary in 1963, leading to the issuance of Proclamation 207/1955, which divided the State Bank of Ethiopia into two distinct entities: the National Bank of Ethiopia (responsible for central banking) and the Commercial Bank of Ethiopia (focused on commercial services). As a result, the National Bank of Ethiopia officially came into existence with Charter No. 30/1955, following its establishment Monetary and Banking Proclamation number 206/1955 was issued to specify the roles and functions of the National Bank of Ethiopia and it began operations in January 1964.
