What is the Currency of Eritrea?
Eritrea is an African country in the Horn of Africa with a developing economy largely dependent on the service industry. Eritrea gained independence from Ethiopia in 1991 after a civil war. The Eritrean Nakfa is the official legal tender in the country. The Eritrean Nakfa is the only recognized legal tender for all transactions. The government forbade the use of foreign currency in local transactions in 2005 intending to increase the country’s foreign reserves. The Bank of Eritrea issues the currency and operates independently from the Ministry of Finance. The Eritrean Nakfa replaced the Ethiopian birr, which served as the official currency since Ethiopia gained control of Eritrea. Also previously used as a currency, the Eritrean tallero circulated during the late 19th century. The use of the tallero ceased by end the 20th century.
The Eritrean Nakfa
Eritrea introduced the Eritrean Nakfa as the official legal tender in November 1997. The Eritrean Nakfa has the abbreviation Nfk with the ISO code ERN. Each Nakfa is subdivided into 100 cents. The Eritrean Nakfa has a fixed exchange rate with the US dollar of 15 Nfk for every dollar. The fixed rate was introduced in 2005. The Eritrean currency comes in both coin and banknote form of various denominations. Coins are in denominations of as low as 5, 10, 25, and 50 cents and the 1 nakfa coin. Banknotes are in denominations of 1, 5, 10, 20, 50, and 100 nakfas. The issuance of the Eritrean Nakfa has been in five series with the first issue being in 1997 and the latest in 2015. The 2015 series devalued all the previous issues of banknotes. Clarence Holbert, an African-American, designed the 2015 banknote series, which the Germany-based Giesecke and Devrient Printers produced.
Stability of the Nakfa
Despite having fixed exchange rates with the US dollar, the Eritrean Nakfa remains a weak and unstable currency with an inflation rate of 18%. The currency is especially weakened by the black market trade where the dollar exchanges for more nakfas as well as human trafficking and forgery. The Eritrean government has put up several measures to counter the increase in counterfeit currency and to reduce its illegal accumulation in foreign countries by issuing new banknotes. The initiative took place between November and December 2015, and the previous banknotes were devalued by January 2016. Currently, the drought is the major contributing factor to the high rates of inflation as it has led to food scarcity and high prices of grain.
Besides being the national legal tender, the Eritrean Nakfa is symbolic of the Eritrean struggle for independence from Ethiopia, and it is named after the town of Nakfa, an important region in Eritrea’s war of independence. The town later served as the base for Eritrean liberators eventually weakening the Ethiopian forces. Naming the national currency after the town honors Nakfa.
The Central Bank of Eritrea
The Bank of Eritrea based in Asmara is the country’s central bank. The bank is government-owned and exists independently of the ministry of finance. Besides issuing the national currency, the Bank of Eritrea deals with matters on foreign investment, imports, purchases of industrial, and agricultural equipment as well as the formulation and implementation of monetary policies.