Historical Sketch

In the 16th century, the present-day Eritrea came under Ottoman rule. The influence of the neighboring Ethiopian states remained strong. In the late 1860s, Italian influence grew, initially through the establishment of commercial footholds, until in 1889, the treaty of Ucciali (Wuchale) between Italy and Ethiopia led to the establishment of the colonial rule. In 1936, Italian East Africa was created, uniting Eritrea, Somalia, and the newly conquered Ethiopia. It remained only short-lived as in 1941, British troops expelled the Italians. While Somalia returned to Italian rule after World War II, Eritrea became an autonomous region within Ethiopia in 1952. Ten years later, autonomy was terminated by the Ethiopian government, which triggered a decade-long civil war in which the Eritrean Liberation Front finally prevailed in 1991. The de facto secession was recognized internationally in 1993 after a referendum under United Nations auspices.

Monetary History Overview

The Maria Theresa Thaler had traditionally been the base of the economy in the entire North African-Arab region. The Italian colonial administration, in an attempt to align with the Lira accounting, introduced the Eritrean Thaler equal to five Italian Lire in 1890, and introduced a corresponding coinage that was about 4% lighter. The Maria Theresa Thalers remained popular nevertheless but lost value against the fixed rate due to the decline of the silver price. The 1890 coins were unpopular and were parltly withdrawn, while the value of the Maria Theresa Thalers continued to fluctuate so that the Eritrean monetary situation remained confused. In order to promoted the introduction of Italian paper money, the Bank of Italy opened an Eritrean subsidiary in February 1914. As a next step in July 1916, the colonial administration banned the use of the Thalers and outlawed the traditional money changers, whose business was transfered to the "Thaler Office" of the Bank of Italy. The measure was lifted again in August 1918, the "Thaler Office" was closed end 1921. However, de facto the currency has become the Italian Lira, against which the colonial office published a reference rate for the Thalers. Due to a wartime shortage in coin supply and at the instigation of local businessmen, the Italian government authorised the issue of "Eritrean" Maria Theresa Thalers in May 1918. Identical in weights and imitating its design, the coins were supposed to be traded in the same manner as the original Thalers, not as an Eritrean Thaler of 5 Lire. The operation failed as the coins did not pass easily in the local markets so that the issue was discontinued. To stabilize the coin supply, the Italian government finally obtained the permission of the Austrian government in 1935 to officially restrike Thalers using the original dies in the Rome mint. They were produced in large numbers and circulated in the entire region until the 1960s. In 1936, Italy occupied Ethiopia and united it with Eritrea and Somalia into the Italian East Africa colony. Subsequently, Italian accounting was introduced everywhere, and Italian coins and paper money were introduced. The Bank of Italy got authorized to overprint Italian banknotes to mark them for use in Italian East Africa. The quotation of a Thaler rate in Eritrea stopped and they continued to be used in trade for their bullion value.

In 1941, British troops invaded Eritrea and Ethiopia and dissolved the Italian East Africa colony. Ethiopia regained independence while Eritrea remained under British control. The Italian money was to be demonetized, and the British military administration restored the legal tender status of the Maria Theresa Thaler and introduced British East African and British Indian money. The ban of the Italian currency was lifted shortly afterwards although its use remained restricted. In 1952, Eritrea was federated with Ethiopia under UN auspices. The British East African currency was demonetized until year end.

The Eritrean war of independence began in the early 1960s, and the Ethiopian military defeat of 1991 led to Eritrea's independence in 1993. In July 1997, the Bank of Eritrea began operations and the Eritrean Nakfa was created as national currency, replacing the Ethiopian Birr at par. Initially, the exchange rate was set to float, but in 2000, the Nakfa got pegged to the US Dollar. In two steps in the mid-2000s, it was devalued by about 36%, since then the rate has remained frozen.

Eritrea joined the International Monetary Fund (IMF) on 06.07.1994.

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