Author(s): Samuel Lijagegnehu Biru
Paper Details: Volume 2, Issue 2
Citation: IJLSSS 2(2) 51
Page No: 584 – 606
ABSTRACT
The main purpose of writing this research is to provide an in-depth analysis of the Ethiopian legal framework governing cash money holding limits. The analysis is become important because Ethiopia’s current legal system lacks a consolidated and compressive framework, leading to confusion and complexities in interpreting and enforcing these limits. further complicating the situation are concerns about the existing legal framework itself, these regulations misaligned with international financial practices. Additional concerning issues is the lack of public awareness. Many Ethiopian consumers remain completely unaware of potential cash money holding restrictions, leaving them vulnerable to unintentional legal violations. Thus main questions of this article are, What is the concept of cash money holding limits, what are the laws that guide this money holding limit in Ethiopia, underlying rationale for implementing, Purposes and Potential Impacts of such regulations in Ethiopia’s economic and financial context? . Then article explores existing regulations and identifies gaps and inconsistencies within the Ethiopian legal system. Additionally, it analyzes international best practices and principles to draw comparisons and identify areas for improvement. The ultimate goal is to establish a framework that is clear, concise, comprehensive, and smooth and aligns with international best practices and principles
For this purpose, the article utilizes a comparative study method comparison with international law and practice as methodology comprehensive approach. Then studies disclose a better way understanding of the Ethiopian legal framework regarding cash money holding limits, highlighting areas in need of reform. It proposes practical recommendations for policymakers, for public, and the financial sector to address the challenges associated with cash-based transactions, promote financial inclusion, and combat illicit activities.
Keywords: cash money holding limit, financial consumer, national bank of Ethiopia, Birr
INTRODUCTION
While currently electronic payment systems is developed and substituted the cash holding, still cash remains by far the world’s most popular financial transaction mechanism.[1] Particularly, Ethiopia has a cash-intensive economy, in which almost all market transactions are conducted in cash. Cash being a “king” in the country’s economy, even government institutions, such as the Ethiopian Customs Commission, is collecting taxes in the form of cash. As a result, a large amount of cash circulates outside of the formal financial system. As of April 2020, more than 113 billion Ethiopian Birr (which is equivalent to $2.8bn) was circulating outside of the formal financial system. [2] This preference for cash holding is stems from a desire for control, security, and immediate usability. Cash offers a sense of tangibility that electronic funds lack. People can physically hold the money, which some find psychologically beneficial for budgeting and avoiding overspending.[3] Additionally, cash doesn’t rely on technology, providing a sense of security in case of internet outages, technical glitches, or even concerns about digital fraud. [4] Also, Cash ensures immediate usability, especially for everyday purchases or in situations where electronic systems aren’t accepted, acting as a universally accepted form of tender.[5]
For these reasons, cash remains a relevant player in the financial world, even in the age of digital wallets and contactless payments. This widespread use of cash in a country creates a breeding ground for criminal activity and hinders economic progress. Cash’s lack of transparency allows for tax evasion and money laundering, making it difficult for authorities to track illegal financial flows.[6] This not only weakens government revenue collection but also potentially fuels criminal enterprises. Furthermore, cash sitting outside the formal banking system limits its availability for loans and investments. [7]This reduces the pool of funds that could be used to stimulate business growth and economic development.
Additionally, the physical handling and security of large amounts of cash can be a significant expense for businesses and financial institutions. Socially, a heavy reliance on cash can exacerbate existing inequalities. Without access to bank accounts or credit cards, a segment of the population is excluded from financial products and services that can help build wealth.[8] To combat the growth and spread of financial crimes associated with this cash-intensive economy, to promote the use of non-cash payment instruments and to ensure the safety and efficacy of the country’s payment system. To combat the negative effects of a cash-intensive economy, the Ethiopian government has implemented various measures. These include limitations on cash withdrawal from financial institutions, restrictions on the maximum amount of cash individuals can hold, and demonetization of banknotes. Additionally, the National Bank of Ethiopia (NBE) recently amended the limits on Birr and foreign currency holdings within the country. This new directive, The Limits on Birr and Foreign Currency Holding in the Territory of Ethiopia (as Amended) Directive No FXD/87/2024, replaces the previous directive (FXD/81/2022) and outlines the legal framework for cash money holding capacity. The Ethiopian government also enforces penalties for violations through various legislative measures, including the criminal code. , While this concept aims to create a more transparent and secure financial environment, the current legal framework presents significant challenges too.
One of the most concerning issues is the lack of public awareness. Many Ethiopian financial consumers remain completely unaware of potential cash money holding restrictions, leaving them vulnerable to unintentional legal violations.[9] This knowledge gap stems from the absence of a centralized information source. Relevant laws and regulations are scattered across various pronouncements, National Bank directives, and potentially even within older, rarely referenced legislation, making it a labyrinthine task to understand the legalities of cash money possession. This fragmented approach breeds confusion and hinders efforts to achieve widespread compliance. Imagine a business owner, unsure of the exact legal limit, erratically depositing chunks of cash to avoid crossing an unknown threshold. This not only disrupts their cash flow but also discourages them from fully integrating into the formal financial sector.
Further complicating the situation are concerns about the existing legal framework itself, these regulations misaligned with international financial practices. Discrepancies raise questions about their effectiveness in achieving intended goals.[10] Legal framework that fails to harmonize with international standards can hinder Ethiopia’s integration into the global financial system and discourage foreign investment. Foreign companies, accustomed to a specific regulatory environment, may be hesitant to navigate an unclear and potentially contradictory legal landscape.
Adding another layer of complexity is the potential lack of internal consistency within the current regulations. The absence of a unified framework creates inconsistencies in interpretation and enforcement.[11] This ambiguity discourages businesses from making informed decisions about cash flow management and exposes them to potential legal challenges. Imagine a scenario where two businesses in similar sectors receive conflicting interpretations of the regulations from different banks. This lack of clarity discourages investment and innovation within the investment sector. Ultimately, a fragmented and inconsistent legal system leaves the consumer in state of confusion.
These issues highlight the critical need for a comprehensive review of the legal framework surrounding cash money holding limits in Ethiopia. For effective implementation, a clear understanding of the existing problems is essential. The lack of public awareness, the mismatch with international standards, and the condition of internal inconsistencies within the regulations themselves all demand careful consideration. Thus, this article targets to provide a clear concept about limits on cash money holding. It will analyze all current laws applied, identify the gaps within them, and based on the analysis, suggest possible recommendations for addressing these problems. Ultimately, the goal is to establish a framework that is clear, concise, comprehensive, smooth and aligns with international best practices and principles.
To achieve the target this article is structured into nine sections, each serving a specific purpose. The first section introduces the topic, while the second section provides a global outlook on the historical development of the legal framework governing cash money holding. Section three presents’ arguments for and against cash money holding limits, drawing on scholarly observations. In section four, the focus shifts to the experiences of European countries that have implemented cash limits, examined the legal frameworks and challenges they encountered.
Moving to a more localized perspective, section five offers an analysis of Ethiopia’s laws regarding cash holding limits to provide a comprehensive understanding of the legal landscape. Section six delves into a comparison with the Ethiopian constitution to identify any potential contradictions. The subsequent section, section seven, discusses the penalties for violating cash holding limits, aiming to educate financial consumers about their rights and responsibilities and the potential impacts.
Section eight takes a comparative approach, juxtaposing Ethiopia’s cash holding limits with international best practices to pinpoint any gaps or deficiencies. The penultimate section, section nine, draws conclusions based on the preceding analysis as well this section outlines potential ways forward in addressing the issues raised throughout the article.
HISTORICAL DEVELOPMENT OF LEGAL FRAMEWORK LIMIT CASH MONEY HOLDING; GLOBAL OUTLOOK
In the early days of commerce, barter reigned supreme. As societies transitioned to precious metals like gold and silver as currency, the ability to accumulate wealth in a concentrated form emerged.[12] However, with this newfound ability came the constant threat of theft and loss. Individuals often entrusted their riches to merchants or goldsmiths who acted as rudimentary custodians. Legal frameworks regarding cash limits were practically nonexistent during this era. The rise of centralized governments in the Middle Ages marked a turning point. Minting coins became a sovereign right, and governments began to establish regulations around currency. These regulations primarily focused on ensuring the authenticity and quality of coins to prevent counterfeiting and debasement. Cash holding limits weren’t a major concern at this stage; the focus was on maintaining the integrity of the coinage system.[13]
The development of paper money presented new challenges. The ease with which paper could be counterfeited compared to precious metals necessitated stricter regulations. Governments started issuing paper currency with official seals and security features. Historical records suggest some limitations on the amount of paper money an individual could exchange for precious metals. These limitations aimed to prevent hoarding and stabilize the value of the currency by controlling the amount of paper money in circulation.[14]
The 18th and 19th centuries witnessed the birth of central banking systems in many countries. These institutions played a pivotal role in shaping the legal landscape surrounding cash holdings. Central banks, tasked with managing a nation’s money supply and fostering economic stability, began implementing policies to encourage the circulation of currency. One strategy involved setting reserve requirements for commercial banks. These requirements mandated banks to hold a specific percentage of customer deposits as reserves, limiting the amount they could lend and indirectly influencing the amount of cash readily available to individuals and businesses.[15] The 20th century saw a significant shift in the way governments approached cash holding limits. The rise of income taxes and the growing need to combat money laundering spurred the development of regulations aimed at tracking large cash transactions. The Bank Secrecy Act of 1970 in the United States, for example, mandated financial institutions to report suspicious activity and cash transactions exceeding a certain threshold. This marked a crucial step towards regulating the movement of large amounts of cash, not necessarily the amount individuals could hold.[16]
Governments have also implemented legislation directly aimed at minimizing and limiting cash holdings in individual hands. One approach involves establishing cash reporting thresholds. When individuals or businesses engage in transactions exceeding this threshold with financial institutions, they are required to report the source and purpose of the cash. This helps authorities track suspicious activity and identify potential money laundering attempts. Another approach involves setting cash possession limits, which is less common but exists in some countries. The rationale behind it is to discourage individuals from accumulating large sums of undeclared cash that could be used for tax evasion or illegal activities.[17] Additionally, governments’ can disincentives cash use by offering tax breaks for electronic transactions or making it difficult to use cash for certain types of purchases. By making cashless transactions more convenient and advantageous, governments can encourage a shift towards digital payments, effectively reducing the amount of physical cash circulating in the economy. The digital age has further revolutionized people relationship with cash. The rise of electronic banking and cashless transactions has led to a decline in the use of physical cash in many developed economies.[18]
STRIKE BALANCING SECURITY AND FREEDOM WITH CASH LIMITS
The question of limiting the amount of cash an individual can hold ignites a fiery debate, pitting concerns about security and financial crime against individual liberty and financial privacy. As the current system allows for limited cash holdings, both sides of the argument raise compelling points that deserve careful consideration.
ADVOCATES FOR CASH LIMITS: CURBING CRIME AND UNMASKING ILLICIT ACTIVITY
Proponents of cash money limits argue that large amounts of untraceable cash are the lifeblood of criminal activity. Drug trafficking, money laundering, and tax evasion all thrive on the anonymity that cash transactions provide. By restricting the amount of cash individuals can hold, authorities believe they can disrupt these criminal enterprises.
Limiting cash would force individuals to rely more heavily on the banking system, which is subject to stricter regulations and reporting requirements. Large cash deposits would trigger scrutiny from financial institutions, potentially leading to the identification and investigation of suspicious activity. This increased transparency could make it significantly more difficult for criminals to move and hide their ill-gotten gains.[19]
Furthermore, cash limits could be a powerful tool for combating tax evasion. Currently, individuals with significant cash holdings can underreport income by simply not depositing it into a bank account. By limiting cash transactions, tax authorities would have a clearer picture of an individual’s financial activity, making it more difficult to evade taxes through cash-based businesses or unreported income. Proponents also argue that cash limits could have a positive impact on the formal economy. By encouraging individuals to utilize the banking system, more money would flow into the financial sector, potentially increasing lending activity and stimulating economic growth. Additionally, a cashless society could streamline government programs and social safety nets, potentially reducing administrative costs and improving efficiency.[20]
OPPONENTS OF CASH LIMITS: AN INFRINGEMENT ON LIBERTY AND PRIVACY
Opponents of cash limits vehemently argue that such restrictions represent a significant intrusion on individual liberty and financial privacy. They believe that individuals have the right to hold their wealth in whatever form they see fit, as long as it is legally acquired. Cash provides a level of anonymity that some individuals value, particularly those who are wary of government surveillance or data breaches.[21]
Furthermore, opponents argue that cash limits would disproportionately impact low-income individuals and those who live in unbanked or under banked communities. For these individuals, access to traditional banking services may be limited due to factors such as distance, fees, or lack of identification documents. Cash limits could effectively exclude them from the financial system, hindering their ability to participate in the economy. Opponents also raise concerns about the potential for abuse by government authorities. They worry that cash limits could be used to restrict access to funds for political dissidents or those critical of the government. Additionally, a cashless society could create thriving black markets where individuals can still transact business outside the purview of the government. Opponents warn that a cashless society could be highly vulnerable to cyber attacks. If all financial transactions rely on digital systems, a major hack could potentially cripple the entire financial infrastructure. Additionally, technical difficulties or power outages could leave individuals unable to access their funds, creating significant economic hardship.[22]
MIDDLE GROUNDS: WEIGHING THE ARGUMENTS
The debate surrounding cash limits is complex, with valid arguments on both sides. Finding the optimal balance involves considering the potential benefits for security and the fight against crime, while also ensuring that individual liberty and access to essential financial services are not unduly compromised. Potential solutions could involve setting high thresholds for cash limits, minimizing the impact on individuals with legitimate reasons for holding cash. Additionally, government programs could be implemented to expand access to financial services in unbanked communities. Ultimately, the decision of whether or not to implement cash limits requires careful consideration of the specific needs and circumstances of each society. A thorough public discourse, weighing the potential benefits against the risks, is essential before embarking on such a significant policy change.
COUNTRIES EXPERIENCE
France stands as a leader in the push for cash limits, driven by a desire to combat terrorism financing. Following a devastating terrorist attack in Paris, France introduced a €1,000 cash limit, recognizing that large amounts of untraceable cash can fuel terrorist operations. To minimize disruption for tourists, a higher threshold of €10,000 was established for foreign visitors. This approach reflects a balancing act – prioritizing security while acknowledging the importance of tourism for the French economy.[23]
Belgium, another European nation, has a longer history with cash limits. Initially set at €15,000, the limit has been progressively lowered to €3,000 in an effort to curb money laundering, tax evasion, and other criminal activities. While the impact of these limits is still being evaluated, Belgian authorities report uncovering numerous instances of individuals attempting to circumvent the rules, highlighting the potential effectiveness of cash limits in disrupting illicit financial activities. However, Belgium also acknowledges that criminals may simply shift their operations to countries with less stringent regulations, a potential drawback of a patchwork approach across Europe.[24]
Germany presents a fascinating case study in the debate. With a deep cultural attachment to cash and widespread use of physical currency for all types of transactions, Germany has been a vocal opponent of cash limits. Proposals for a €5,000 threshold were met with fierce resistance from across the political spectrum, with many Germans viewing such restrictions as an unwarranted intrusion on individual liberty. However, recent revelations suggest that Germany may be attracting more money laundering activity due to stricter cash limits in neighboring countries, prompting renewed discussions about the potential benefits of implementing a threshold.
Italy’s experience with cash limits is a tale of two governments. Initially, a €1,000 limit was introduced to combat widespread tax evasion. This move aimed to encourage a “revolution” in how Italians think about and use cash, pushing them towards more traceable digital transactions. However, a later government reversed course, raising the limit to nearly €3,000 in a bid to stimulate spending during a recession. This decision sparked controversy, with anti-corruption advocates fearing a decline in efforts to combat the informal economy, which is estimated to be a significant portion of Italy’s GDP. Despite some evidence suggesting the initial €1,000 limit was effective in curbing illicit cash use, the policy shift reflects the complex interplay between economic considerations and the fight against financial crime.[25]
Finally, Switzerland, a nation outside the European Union, offers a contrasting perspective. In 2016, they introduced a very high cash threshold of CHF 100,000 (approximately £81,000). This seemingly high limit suggests a more relaxed approach to cash usage, perhaps reflecting a cultural preference for physical currency. Switzerland even continues to issue the high-denomination CHF 1,000 note, highlighting a different stance compared to other European nations.[26]
In concluding remark, the European landscape regarding cash use and cash limits reveals a fascinating tapestry of cultural and historical influences. While some nations, like France and Belgium, prioritize security and transparency by imposing stricter limits, others, like Germany and Switzerland, value individual freedom and a long-standing tradition of cash-based transactions. Economist Charles Goodhart emphasizes the importance of acknowledging these cultural differences when considering cash limits. He suggests a gradual approach, potentially starting with higher limits that can be lowered over time, to account for these variations. The debate surrounding cash limits in Europe is far from settled. While the potential benefits of cash limits in combating crime and promoting financial transparency are undeniable, concerns about individual liberty and disruption to traditional ways of life cannot be ignored. Finding the right balance between security and freedom will require careful consideration of cultural contexts and a nuanced approach that acknowledges the diverse perspectives within Europe. The experiences of various European countries provide valuable insights into the potential implications of cash limits, offering a roadmap for future policies that can effectively address the challenges of the modern financial landscape.
A CRITICAL EXAMINATION THE LEGAL FRAMEWORK WORK GUIDING LIMIT CASH MONEY HOLDING IN ETHIOPIA
A LABYRINTHINE LANDSCAPE: CASH HOLDING LIMITS IN ETHIOPIA
Ethiopia’s legal framework governing cash holding limits presents a complex and fragmented picture. As discussed in section one of this article, unlike a single, comprehensive law, the regulations are scattered across various proclamations and directives, creating a maze for individuals and businesses navigating the system. This article in this section delves into these legal instruments, analyzing their provisions alongside potential justifications and concerns, while offering insights from various viewpoints for creating clear and compressive image.
NATIONAL BANK OF ETHIOPIA ESTABLISHMENT PROCLAMATION NO 591/2008
This proclamation serves as the bedrock of Ethiopia’s cash holding regulations. It establishes the Birr (ETB) as the legal tender, emphasizing cash transactions as the primary mode of exchange within the country.[27] This discourages barter and non-monetary transactions, promoting a cash-based economy in simple saying; The National Bank of Ethiopia Establishment Proclamation lays the foundation for a system were cash reigns supreme. By designating the Birr as the legal tender, the proclamation emphasizes its importance in everyday transactions. This discourages alternative exchange methods like barter, which might be less transparent and efficient for the government to monitor. Additionally, proclamation also empowers the National Bank of Ethiopia (NBE) to determine the design and characteristics of legal tender, ensuring uniformity and security against counterfeiting. While promoting a cash-based system, the proclamation also hints at the government’s interest in regulating cash movement.[28] This proclamation again restricts the amount of money individuals can carry upon entering or leaving Ethiopia. This suggests a focus on monitoring foreign exchange flows and potentially combating illegal activities like money laundering. This control over cross-border cash movement foreshadows future regulations aimed at managing cash within the country’s borders.[29]
In concluding remark, The National Bank of Ethiopia Establishment Proclamation lays the groundwork for a cash-based system in Ethiopia. While it doesn’t explicitly set limitations on individual cash holdings it entitles the national bank to issued and determine in directive, as well it empowers the NBE to control the design and circulation of currency.
LEGAL TENDER CURRENCY NOTES REDEMPTION DIRECTIVE NO NMD 2/2020
This directive, while not establishing a direct limit on cash holdings, employs an indirect approach to discourage individuals from keeping large amounts of old currency. Article 6 mandates the exchange of old banknotes for newly issued ones. Individuals holding more than 1.5 million birr in the old currency face a mandatory exchange process, potentially leading to delays and inconveniences. [30]This policy incentivizes transitioning to the new currency and discourages holding large amounts of cash in general. The rationale behind this could be twofold. Firstly, removing outdated banknotes from circulation helps prevent counterfeiting and ensures the smooth functioning of the financial system. Counterfeiters often target older currencies with less sophisticated security features.[31] By removing them from circulation, the government makes it more difficult to counterfeit money and protects the integrity of the financial system. Secondly, this policy might nudge individuals towards utilizing bank accounts for larger sums, promoting a cashless society. Holding large amounts of cash can be inconvenient and risky. By encouraging individuals to deposit their money in banks, the government aims to promote financial inclusion and transparency. Bank accounts provide a secure and convenient way to store money, and they also offer additional services like online banking and mobile money transfers.[32]
Generally, The Legal Tender Currency Note Redemption Directive, though not explicitly setting limits, discourages holding large amounts of old currency. This policy aims to remove outdated banknotes from circulation and potentially encourage individuals to shift towards utilizing bank accounts for larger transactions. However, it’s important to consider the potential impact on individuals who might not have easy access to banking facilities, particularly in rural areas. This highlights the need for a balanced approach that promotes a cashless society while ensuring financial inclusion.
LEGAL TENDER PROTECTION AMENDMENTS DIRECTIVE NO CMD 02/2021
This directive marks a significant shift by introducing clear limitations on individual cash holdings. It restricts individuals (natural persons) to holding a maximum of 100,000 birr, while businesses (juridical person) can only hold up to birr 200,000 birr.[33] The potential reasons behind the Legal Tender Protection Amendments Directive are multifaceted. It might aim to curb money laundering and terrorist financing activities by making it difficult to move large sums outside the formal financial system.[34] Money laundering involves disguising the illegal source of funds, and large cash transactions are often a red flag for suspicious activity. By limiting cash holdings, the government makes it more challenging for criminals to launder money. Similarly, terrorist financing often relies on cash to fund operations. Limiting cash holdings can make it more difficult for terrorist organizations to raise and move funds. Additionally, the directive could encourage individuals and businesses to utilize bank accounts for larger transactions, promoting financial inclusion and transparency.[35] Financial inclusion refers to ensuring everyone has access to financial services like bank accounts, loans, and insurance. By encouraging the use of bank accounts, the government aims to bring more people into the formal financial system. This can have numerous benefits, such as increased access to credit, savings opportunities, and improved financial security.[36]
However, limitations on cash holdings can also pose challenges. Individuals in rural areas with limited access to banking facilities might be disproportionately impacted. Rural areas in Ethiopia often have limited access to bank branches and ATMs. This can make it difficult for people in these areas to comply with the cash holding limits. Additionally, some individuals might prefer to keep their cash on hand for security reasons, especially in areas with high crime rates. Furthermore, concerns regarding privacy and the freedom to manage one’s own finances could arise. Cash transactions are generally considered more private than bank transfers, which can be tracked electronically. Individuals who value their privacy might be hesitant to deposit large sums of money in banks. Additionally, some individuals might view cash holding limits as an infringement on their freedom to manage their own finances.[37]
In sum up The Legal Tender Protection Amendments Directive marks a turning point by introducing specific cash holding limits. The stated goals might include curbing illegal activities and promoting financial inclusion. However, the potential drawbacks, such as disproportionately affecting those in rural areas and raising privacy concerns, necessitate careful evaluation. Evaluating the effectiveness of these limitations and their impact on various stakeholders is crucial for ensuring a balanced approach.
LIMIT ON BIRR AND FOREIGN CURRENCY HOLDING IN TERRITORY OF ETHIOPIA DIRECTIVE NO FXD 87/2024
This recent directive specifically addresses cash held by individuals entering or leaving the country. It sets a maximum limit of 3,000 birr for individuals crossing Ethiopian borders. However, recognizing the strong trade ties with Djibouti, it allows a higher limit of 10,000 birr for travel to that specific destination.[38] This directive highlights the government’s continued focus on regulating cross-border cash movement. By restricting the amount of Ethiopian Birr individuals can carry, the government aims to monitor foreign exchange flows and potentially prevent illegal activities. Large cash movements across borders can be a sign of money laundering, terrorist financing, or other illegal activities. By limiting the amount of cash individuals can carry, the government makes it more difficult to engage in these activities. The differentiated limit for travel to Djibouti acknowledges the economic ties between the two countries. This highlights the need for a balance between controlling cross-border cash movement and facilitating legitimate trade activities. Businesses and individuals engaged in trade with Djibouti might require larger amounts of cash for transactions. The higher limit for travel to Djibouti recognizes this need and ensures that legitimate trade activities are not hindered.
CASH WITHDRAWAL LIMIT DIRECTIVE NO FIS 03/2020
This directive focuses on cash withdrawals from financial institutions. While these limitations are higher than the individual cash holding limits set by the Legal Tender Protection Amendments Directive, they still introduce a layer of control over access to large amounts of cash. This Cash Withdrawal Limit Directive establishes daily and monthly withdrawal limits for individuals and businesses. [39]Individuals can withdraw a maximum of 200,000 birr per day and 1 million birr per month. Businesses have a higher limit, with daily withdrawals capped at 300,000 birr and monthly withdrawals reaching 2.5 million birrs. However, the directive allows financial institutions some discretion to approve exceptional withdrawals upon proper justification.[40]
This policy aims to strike a balance between convenience and control. The withdrawal limits cater to everyday transactions like shopping, paying bills, and withdrawing salaries. Businesses can also withdraw sufficient funds to cover operational expenses. However, the limits make it more difficult to withdraw large sums for potentially illicit activities like money laundering or financing terrorism. The directive grants financial institutions some discretion to approve exceptional withdrawals upon proper justification. This flexibility can be beneficial for businesses or individuals with legitimate reasons for needing large amounts of cash, such as purchasing a car or renovating a house. However, it also raises concerns about potential inconsistencies in application. Different financial institutions might have varying interpretations of “proper justification,” leading to uneven access to large cash withdrawals.
Generally, the Cash Withdrawal Limit Directive attempts to balance convenience for everyday transactions with control over potentially illicit activities. The withdrawal limits are set at a level that caters to most needs while making it difficult to withdraw large sums outside the formal financial system. However, the flexibility granted to financial institutions for exceptional withdrawals needs careful consideration. Standardizing criteria for justifying exceptional withdrawals could help ensure a more consistent application of the directive.
CONSTITUTIONAL RIGHT TO PROPERTY AND THE LIMIT ON CASH HOLDING IN ETHIOPIA
The Ethiopian Constitution upholds the fundamental right to property as a cornerstone of individual autonomy and economic freedom. It explicitly recognizes the freedom of individuals to acquire property through their labor, creativity, or other means, highlighting the inherent value of personal ownership and control over one’s assets.[41] This constitutional provision underscores the importance of property rights in fostering economic growth, incentivizing innovation, and empowering individuals to pursue their goals and aspirations. Moreover, the Constitution extends this right to property by emphasizing the freedom of individuals to use their assets in a manner of their choosing. Whether it is for personal consumption, investment, or philanthropic endeavors, individuals have the autonomy to manage, transfer, or dispose of their property as they see fit. [42]This aspect of property rights not only reflects the principles of economic liberty and individual responsibility but also underscores the importance of personal agency in decision-making and resource allocation. In addition to the constitutional protections of property rights, Ethiopia is also bound by international human rights laws that safeguard the right to privacy and personal autonomy. These international instruments recognize the inherent dignity and autonomy of individuals, affirming their right to conduct their affairs without unwarranted interference or restrictions. By upholding the right to privacy, these laws ensure that individuals can exercise their freedoms and pursue their interests without undue scrutiny or intrusion by external actors.[43]
However, when considering the limitations on cash holding in Ethiopia, it is essential to balance these fundamental rights with the regulatory imperatives aimed at preventing illicit activities such as money laundering, tax evasion, and terrorism financing. While restrictions on cash holding may be necessary to safeguard public interests and maintain financial stability, such limitations should be narrowly construed and implemented in a manner that respects individual rights. Any restrictions on cash holding should be proportionate and necessary, subject to judicial review to ensure compliance with constitutional and international human rights standards. It is crucial to strike a delicate balance between protecting public interests and upholding individual freedoms, recognizing that excessive restrictions on cash holding could potentially violate fundamental rights.
Therefore, any regulations or laws governing cash holding in Ethiopia should be carefully crafted to achieve their intended objectives while respecting the rights of individuals to property, privacy, and autonomy. By adopting a nuanced approach that considers both regulatory imperatives and individual rights, Ethiopia can uphold the rule of law and promote a fair and just society where the rights of individuals are protected and respected.
PENALTY FOR VIOLATION OF LAW REGARDING LIMIT ON CASH MONEY HOLDING
The penalties for violations related to cash money holding in Ethiopia are outlined in various legal instruments, including the Criminal Code, Custom Duty Proclamation, and National Bank of Ethiopia Establishment Proclamation. These laws establish the framework for regulating the possession, import, export, and movement of currency within the country, with specific provisions for enforcement and penalties for non-compliance.
Under of the Criminal Code, it stated that, individuals who violate laws, regulations, or directives concerning currency holding, whether they are residents or foreigners, may be subject to fines not exceeding 300 birr or imprisonment for a period not exceeding three months. [44]This provision aims to deter unlawful activities related to currency transactions and ensure compliance with regulatory requirements governing cash holdings. The Custom Duty Proclamation defines goods as any resources of economic value, including money, and imposes penalties for individuals who knowingly or should be aware of attempting to import or export prohibited or restricted goods in contravention of customs laws.[45] Also the proclamation stipulates that such offenses can result in rigorous imprisonment ranging from five to ten years and fines ranging from 50,000 to 200,000 birr. Given that money is considered a type of good under this law, individuals who exceed legal limits on cash holdings may face severe penalties under this provision. [46]
The National Bank of Ethiopia Establishment Proclamation further elaborates on penalties related to currency holding violations. the proclamation, stipulate that individuals who attempt to enter or leave Ethiopian territory with an excess amount of Ethiopian currency beyond what is authorized by the National Bank may face confiscation of property and criminal penalties. [47]The severity of the punishment depends on various factors, including the amount of currency involved, the intent behind the offense, and whether the violation is committed repeatedly. In cases where lower penalties are prescribed in the Criminal Code, individuals found guilty of currency-related offenses may face rigorous imprisonment for up to 15 years and fines ranging from 50,000 to 100,000 birr. Moreover, if the offense involves misuse of official power, intent to amass wealth improperly, or repeated violations, the penalties may be more severe. Additionally, fines may be imposed based on the value of the property involved in the offense, potentially reaching up to three times the property’s value or six times the value if committed by a corporate entity.[48] These legal provisions underscore the importance of compliance with regulations governing cash holdings in Ethiopia and highlight the significant consequences for individuals who violate these rules. By establishing clear penalties for currency-related offenses, the Ethiopian legal framework aims to maintain financial stability, prevent illicit activities, and ensure adherence to regulatory requirements in the management of currency transactions within the country.[49]
Those penalties for violations related to cash money holding in Ethiopia are designed to uphold the rule of law, protect public interests, and deter unlawful activities that could undermine the country’s economic stability. By enforcing these penalties effectively and consistently, Ethiopian authorities can promote transparency, accountability, and compliance with regulatory standards in currency transactions, thereby contributing to a more secure and well-regulated financial environment. However, considering the broader economic implications of these regulations is so important. While the government’s intention behind imposing penalties for violations related to cash money holding may be to promote financial transparency, combat money laundering, and enhance overall financial stability, there are potential drawbacks and unintended consequences that need to be taken into account.
One perspective to consider is the impact of stringent cash holding regulations on financial inclusion and access to banking services for individuals and businesses, particularly in rural areas or among marginalized populations. In Ethiopia, where a significant portion of the population remains unbanked or under banked, strict limitations on cash transactions and holding could pose challenges for those who rely on cash as their primary means of conducting financial transactions. Forcing individuals to deposit all their cash holdings into bank accounts may not be feasible or practical for everyone, especially in areas with limited banking infrastructure or where trust in formal financial institutions is low. Moreover, imposing heavy penalties for violations related to cash money holding could inadvertently drive individuals and businesses towards informal or illicit channels for conducting financial transactions. If the penalties are perceived as disproportionately harsh or if compliance with the regulations is too burdensome, some individuals may choose to circumvent the rules altogether, leading to an increase in underground economic activities and potential risks associated with unregulated financial transactions.
Another consideration is the potential impact on small businesses and entrepreneurs who rely on cash transactions for their day-to-day operations. For many small businesses, especially those operating in cash-intensive sectors such as retail or agriculture, cash remain a crucial medium of exchange. Strict limitations on cash holdings could disrupt their business operations, hinder their ability to manage cash flow effectively, and impose additional administrative burdens in terms of record-keeping and reporting requirements. Furthermore, the enforcement of penalties for violations related to cash money holding may disproportionately affect vulnerable populations, such as low-income individuals, migrant workers, or those without access to formal banking services. These individuals may not have the means or resources to comply with the regulations or may face challenges in understanding and navigating the complex regulatory landscape surrounding cash transactions. As a result, they may be at a higher risk of facing penalties or legal consequences for unintentional violations of the rules.
In conclusion, while penalties for violations related to cash money holding in Ethiopia serve a legitimate purpose in promoting financial integrity and combating illicit financial activities, it is crucial to consider the potential unintended consequences and impacts on financial inclusion, small businesses, and vulnerable populations. By adopting a balanced and targeted approach to regulating cash transactions, policymakers can achieve the dual objectives of enhancing financial transparency and accessibility while minimizing adverse effects on those who rely on cash as a primary medium of exchange.
GAPS IN LEGAL FRAMEWORK GUIDING LIMIT ON CASH MONEY HOLDING IN ETHIOPIA FROM INTERNATIONAL PRINCIPLES POINT OF VIEW
Limitations on cash money holding in Ethiopia are governed by a complex legal framework that includes various provisions stated and discussed above. While these regulations aim to uphold financial integrity and prevent illicit activities, there are gaps and lacunae in the legal framework when viewed from an international law standpoint. International principles and standards advocate against stringent limits on cash money holding, emphasizing the importance of balancing regulatory objectives with individual rights, economic freedom, financial inclusion, and emergency preparedness.
One key international standard that influences the approach to cash money holding is the Financial Action Task Force (FATF), which promotes targeted measures to prevent money laundering and terrorist financing. While recognizing the need for effective measures to combat financial crimes, FATF principles highlight the importance of ensuring that government actions do not unduly restrict individuals’ rights to access and use cash. This principle underscores the need for a proportionate and risk-based approach to regulating cash transactions, taking into account the broader implications for financial inclusion and economic freedom.[50] The concept of economic freedom theory also plays a significant role in shaping international perspectives on cash money holding. Advocates of economic freedom argue for minimal government intervention in economic activities and emphasize the importance of allowing individuals and businesses to make decisions based on market forces. From this perspective, restrictions on cash money holding should be kept to a minimum to preserve individual autonomy and promote economic efficiency. [51]Furthermore, principles of financial inclusion, as articulated in international development policies, underscore the importance of ensuring that everyone has access to financial services and opportunities. Limitations on cash money holding could hinder financial participation for marginalized populations who rely on cash transactions for their daily needs. By imposing strict limits on cash holdings, governments risk excluding vulnerable groups from formal financial systems and perpetuating financial exclusion.[52]
In the context of emergency preparedness, access to cash and financial services during crises such as natural disasters or financial downturns is crucial for individuals and communities to recover and rebuild. Restrictions on cash money holding could impede individuals’ ability to access emergency funds quickly and efficiently, exacerbating the impact of emergencies on vulnerable populations. International principles emphasize the need for flexibility in cash management during emergencies to ensure that individuals can meet their immediate needs and recover from unforeseen events.[53] When comparing Ethiopia’s legal framework on cash money holding with international principles, it becomes evident that the country’s regulations are somewhat stricter and less aligned with global standards. The limitations on cash money holding in Ethiopia impose significant constraints on individuals’ ability to hold and use cash for daily transactions, savings, and emergencies. This approach may lead to unintended consequences, including financial exclusion, reduced economic freedom, and challenges in accessing emergency funds during crises.
Moreover, the lack of flexibility in Ethiopia’s regulations on cash money holding raises concerns about the impact on small businesses, informal economies, and marginalized communities. By restricting cash transactions and holdings, the government may inadvertently push individuals towards informal or illicit channels, undermining efforts to promote financial transparency and integrity. Additionally, stringent limits on cash money holding could deter foreign investors and hinder economic growth by creating barriers to capital flows and transactions.
In light of these considerations, there is a need for a more nuanced and balanced approach to regulating cash money holding in Ethiopia. Aligning with international principles advocating for proportionate measures, policymakers should consider revising existing regulations to ensure that limitations on cash holdings are reasonable, targeted, and do not unduly restrict individual rights or economic freedom. By promoting financial inclusion, emergency preparedness, and adherence to global standards, Ethiopia can create a regulatory environment that supports sustainable development and fosters responsible financial behavior among its citizens.
In conclusion, while limitations on cash money holding serve important regulatory purposes, it is essential for Ethiopia to review its legal framework in light of international principles and standards. By adopting a more flexible and inclusive approach to regulating cash transactions, the country can promote financial integrity, economic freedom, and access to financial services for all its citizens. Through dialogue with international stakeholders and alignment with best practices, Ethiopia can enhance its regulatory framework on cash money holding to better reflect global norms and support its development objectives.
CONCLUSION
The intricate relationship between cash and the broader economic landscape in Ethiopia presents a complex and multifaceted challenge. While cash remains the predominant mode of transaction, its pervasive use has fostered a fertile ground for criminal activities, hindering economic growth and exacerbating societal inequalities. In response, the Ethiopian government has introduced a series of measures aimed at curtailing the negative impacts of a cash-intensive economy. These initiatives, including cash withdrawal limits and restrictions on cash holdings, represent a significant step towards a more regulated and transparent financial system.
However, the current legal framework governing cash management in Ethiopia is characterized by several shortcomings. The fragmented nature of the regulations, scattered across various legal instruments, creates confusion and inconsistencies. Furthermore, the lack of public awareness regarding these regulations hinders compliance and perpetuates a culture of cash dependency. The interplay between the constitutional right to property and the need to regulate cash for public interest presents another complex challenge. While the government has the authority to impose restrictions on cash holdings to safeguard national interests, these measures must be balanced with the fundamental rights of individuals.
Moreover, the Ethiopian cash management regime appears to deviate from international best practices and standards. The relatively stringent limitations on cash holdings, coupled with a lack of flexibility, raise concerns about potential negative impacts on financial inclusion, economic growth, and emergency preparedness. A more nuanced approach that aligns with global standards is necessary to mitigate these risks.
The empirical evidence suggests that a blanket prohibition on cash, or excessively stringent restrictions, is neither feasible nor desirable. Instead, a carefully calibrated regulatory framework is required to strike a balance between the competing objectives of financial stability, public safety, and individual rights. By adopting a risk-based approach and focusing on high-risk transactions, the government can effectively address the challenges posed by cash while minimizing the negative consequences for law-abiding citizens. The path forward requires a comprehensive and holistic approach that addresses the multifaceted challenges associated with cash management. By carefully considering the interplay between regulatory imperatives, individual rights, and economic development, the government can create a regulatory environment that fosters financial inclusion, promotes economic growth, and safeguards public interests.
Further to address the challenges posed by Ethiopia’s cash-intensive economy and to optimize the benefits of cash management, the following suggestion are mandatory considered Firstly, the fragmented legal framework governing cash holdings should be consolidated into a single, comprehensive, and easily understandable law. This will enhance clarity, reduce ambiguity, and facilitate compliance. Secondly, a robust public awareness campaign should be launched to inform the public about the rationale behind cash management regulations, their implications, and the importance of compliance. This will foster a culture of voluntary compliance and reduce the likelihood of unintentional violations.
Thirdly, a thorough review of the existing legal framework is essential to align it with international best practices and standards, particularly those outlined by the Financial Action Task Force (FATF). This alignment will enhance Ethiopia’s reputation as a responsible member of the global financial community and facilitate smoother cross-border transactions. Fourthly, the potential impact of cash management regulations on financial inclusion should be carefully assessed, and measures should be implemented to mitigate any adverse effects on vulnerable populations. This includes promoting access to financial services, digital literacy, and financial education.
Fifthly, adopting a risk-based approach to cash management is crucial. Rather than imposing blanket restrictions on cash holdings, the focus should be on high-risk transactions and individuals. This approach will minimize the impact on law-abiding citizens while effectively targeting illicit activities. Sixth, strengthening enforcement mechanisms is essential to deter violations and ensure compliance. However, enforcement should be conducted in a fair and proportionate manner, avoiding excessive penalties that could disproportionately affect vulnerable populations. Finally, a regular review and evaluation process should be established to assess the effectiveness of the cash management regime and to make necessary adjustments in response to changing circumstances and emerging challenges.
[1] Peter Sands, Haylea Campbell, Tom Keatinge and Ben Weisman, Limiting the Use of Cash for Big Purchases Assessing the Case for Uniform Cash Thresholds, (Published in 2017 by the Royal United Services Institute for Defence and Security Studies) , pp.5
[2] Messay Asgedom Gobena and Daniel G. Kebede, Cash economy, criminality and cash regulation in Ethiopia , Journal of Money Laundering Control , DOI: 10.1108/JMLC-06-2021-0065 , August 2021 , pp.2
[3] Yulu Ye, A Literature Review on the Cash Holding Issues, Modern Economy, 9, 1054-1064 (2018
https://doi.org/10.4236/me.2018.9608, pp. 3
[4] Helmut Stix, Why Do People Save in Cash? Distrust, Memories of Banking Crises, Weak Institutions and Dollarization, ( October 2011) , pp. 6
[5] Yamden Pandok Bitrus, The Demand for Money in Nigeria, European Journal of Business and Management www.iiste.org ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol 3, No.6, 2011 , pp.3
[6] Gobena, M.A. and Kebede, D.G. “Cash economy, criminality and cash regulation in Ethiopia”, Journal of Money Laundering Control, Vol. 25 No. 3, 2022, pp. 7
[7] Enyew Alemaw Mesfin, the factors affecting cash holding decisions of manufacturing share companies in Ethiopia , pp.9
[8]Maximilian Hilgen, (The determinants of cash holdings: Evidence from German listed firms, University of Twente School of Management and Governance MSc. Business Administration
Financial Management Specialization, September 2015) ,pp.7
[9] Mertehab and Getu law office, Legal Update on Limit on Foreign Currency Holding in the Territory of Ethiopia , https://mehrteableul.com/index.php/insights/news-and-updates/item/45-legal-update-on-limit-on-foreign-currency-holding-in-the-territory-of-ethiopia , last accessed on April 23 , 2024
[10] Supra note 8, pp.19
[11] Ibid
[12] Supra note 1, pp. 10
[13] Glyn Davies, A History of Money From Ancient Times to the Present Day ,( Published in co-operation with
Julian Hodge Bank Limited 3rd edition, 2002 ) , pp.11
[14] Supra note 6
[15] Jürg Conzett, The History of Money , www.sunflower.ch , pp. 9
[16] Ibid pp. 11
[17] Luis Araujoy Vincent Bignonz R´egis Bretonx Braz Camargo, On the Origin of Money , (June 19, 2016) , pp.17
[18] Ibid 18
[19] Brendan de Beer, ‘Portugal to Impose Cash Limit’, Portugal News Online, 8 June 2016 , pp.12
[20] Monica Marina and Greg Niehausb , On the Sensitivity of Corporate Cash Holdings and Hedging to Cash Flows , (December, 2011) , pp.6
[21] Friedrich Schneider, ‘The Financial Flows of Transnational Crime and Tax Fraud in OECD Countries: How Much Cash Is Used and Wha t Do We (Not) Know?’, November 2015, p. 6,
[22]Ibid
[23] Michael Levi, ‘Combating the Financing of Terrorism: A History and Assessment of the Control of “Threat Finance”’, British Journal of Criminology Vol. 50, No. 4, May 2010, pp. 17
[24]Philip Oltermann, ‘German Plan to Impose Limit on Cash Transactions Met with Fierce Resistance’,
The Guardian, 8 February 2016, pp.26
[25] Ibid
[26] Ibid
[27] National bank of Ethiopia establishment proclamation no 591/2008, Article 17
[28] Ibid, Article 18 sub article 1
[29] Ibid article 18(6
[30] Legal tender currency note redemption directive no NMD 2/2020, Article 6
[31] Supra note 5
[32] Ibid pp. 20
[33] Legal tender protection amendments directive no CMD 02/2021, article 3
[34] Supra note 12
[35] Darcey McVanel and Nikita Perevalov, Financial Constraints and the Cash-Holding Behavior of Canadian Firms , Bank of Canada Discussion Paper 2008-16
October 2008, pp. 19
[36] Ibid, pp. 22
[37] Ibid
[38] Limit on birr and foreign currency holding in territory of Ethiopia directive no FXD 87/2024, article 6
[39]Cash withdrawal limit directive no FIS 03/2020, article 7
[40] Ibid article 8
[41] Federal democratic republic of Ethiopia proclamation no 1/1995, article 40 sun article 1and 2
[42] Ibid sub article 2
[43] Universal Declaration of Human Rights , December 10, article 12 , International Covenant on Civil and Political Rights, 23 March 1976 , article 17 , International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families, 18 December 1990 , article 14
[44] The Criminal Code of Ethiopia, Proclamation No. 414/2004, Federal Negarit Gazetta 2005-05-09 , Article 785
[45] The Custom Duty Proclamation no 859/2014 , article 2 sub article 1
[46]Ibid Article 168
[47]The National Bank of Ethiopia Establishment Proclamation , Article 26(4)
[48] Ibid article 27
[49] Ibid article 28
[50] Dr. Belal Yousef AL Smirat , Cash Management Practices and Financial Performance of Small
and Medium Enterprises (SMEs) in Jordan, Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.7, No.2, 2016, pp.99
[51] Berto Mulia Wibawa1, *, Ninditya Nareswari , Cash Holding Management and Firm Performance:
Empirical Evidence for Financially Constrained Firms in Indonesia, Advances in Economics, Business and Management Research, volume 135, 3rd Asia Pacific International Conference of Management and Business Science (AICMBS 2019) , pp. 75
[52] Bojana Vuković, Kristina Mijić, Dejan Jakšić, Dušan Saković, determinants of cash holdings:
evidence from Balkan countries, pp. 34
[53] Supra note 46 determinants of cash holdings: evidence from Balkan countries, E&M Economics and Management, 25(1), 130–142. https://doi.org/10.15240/tul/001/2022-1-008, 2002, pp. 6