Abstract
<title>Abstract</title> <p>Developing and emerging economies characterized by elevated inflation, persistent balance-of-payments constraints, and heavy foreign currency debt obligations have increasingly transitioned toward flexible exchange rate arrangements. In this context, maintaining exchange rate stability and managing adjustment shocks are critical to preventing structural economic distress. This study examines the structural drivers behind Ethiopia’s decision to adopt a market-based floating exchange rate system in August 2024 and evaluates its post-adoption macroeconomic performance. The empirical findings indicate that transitioning to a market-determined exchange rate enhanced international competitiveness and strengthened shock-absorption capacity. A comparative evaluation of initial macroeconomic indicators demonstrates positive effects, particularly in export expansion, contained exchange rate volatility, and resilient foreign exchange reserve dynamics.</p>