Exchange rate reform combined with other liberalizing trade policyrnreforms in Ethiopia's economic reform program was anticipated torndiversify the export base of the economy which is highly dominated byrncoffee export, still with limited supply. Parallel to diversification ofrnexport base of the economy, reducing the imports especially thernconsumer goods was objective of the reform. The study investigatesrnthe effect of exchange rate reform in Ethiopians trade performancernduring the period 1970/71 to 2009/10. The overall performancerngenerally viewed under fixed exchange rate policy (1970 /7 1-rn1991 / 1992) and flexible exchange rate (1991 / 1992-2009/2010).rnLiteratures justified that the fixed exchange rate policy criticallyrnaffects the country's trade balance. As a result of fixed exchange raternpolicy the country's domestic currency has been assumed asrnovervalued. The effect of this over valuation lower the export volumernand makes import very cheap hence the trade balance deficit would bernwidened. Such problem and other related conditions demanded thernexchange rate to be flexible . Findings of this study justified positivernand significant change in diversification of export base after thernexchange rate reform has been observed. The export mix which wasrndominated (actually it is still dominating) by coffee, fairly increased byrnnon-coffee exports through the depreciation of the values of therncountry's currency.rnOn the other hand it has been observed that the structure of importsrnwhich is pro-consumer goods remained unchanged even afterrnadoption of persistent devaluation of the exchange rate. Exchange raternreforms were found not to constrain imports as anticipated ratherrnthey stimulate imports because diversification and facilitation ofrnexport items mostly requires imputes partly imported as rawrnmaterials/capital goods. A major policy lesson is that exchange raternreforms (devaluation) are not sufficient to diversify the economy andrnchange the structure of imports. Other major incentives that creaternconducive environment for domestic production like effectiverninfrastructure and accessibility and supply of credit that could lead tornsignificant improvement in competitiveness are required