Eritreans can get a much better deal away from official exchanges

Eritrea has a serious shortage of foreign exchange - which is vital for imports such as oil and food.

The measure is aimed at curbing the black market where people get 33% more for their money than official rates.

From Friday those caught will face two years in prison and a fine of some $130,000 - a huge deterrent when an average income is only $130 per year.

War

Government officials say Eritrea's hard currency has gone on subsidising fuel prices, especially for the rural poor.

Many young Eritreans are in the army, not the fields

The International Monetary Fund says the problem is linked to loss of trade with neighbouring Sudan and Ethiopia.

It also points to the government's policy of fixing the local currency, the Nakfa, against foreign currencies.

The BBC's Ed Harris in the capital Asmara says that for those unable to pay, the prison sentence will be increased proportionately.

He says the new regulations could also affect remittances from Eritreans overseas which in 2003 were worth as much as 70% of Eritrea's GDP.

Senior UN and Eritrean government officials have warned in recent weeks that continuing tensions with Ethiopia following their 1998-2000 border war are squeezing Eritrea's economy and could even lead to war.