In the aftermath of its independence from Ethiopia, Eritrea faced the critical task of establishing a stable economic framework. On November 8, 1997, Eritrea officially introduced the nakfa as its national currency, replacing the Ethiopian birr that had been in use. The name 'nakfa' was derived from a town in Eritrea known for its historical significance, particularly as the site of battles in the struggle for independence. The currency was issued to reflect Eritrea's newfound independence and to foster a sense of national pride among its citizens.

The nakfa was subdivided into 100 cents and was introduced at a time when the Eritrean government aimed to strengthen its economic policies and promote local trade. The introduction of the nakfa was accompanied by a public awareness campaign to educate citizens about the new currency and its significance. Banknotes featured designs and imagery that highlighted Eritrea's culture and heritage, including references to its historical figures and landmarks. The changes were necessary to assist the Eritrean economy, which was still in the early stages of recovery and development after decades of conflict.

The nakfa not only served as a medium of exchange but also symbolized the Eritrean people's aspirations for a sovereign state distinct from Ethiopia. It allowed the government to implement monetary policies appropriate for its own economic context and to control inflation more effectively. By introducing its own currency, Eritrea positioned itself as an independent nation on the international stage, facilitating both domestic and foreign trade. The nakfa has undergone various changes and denominations since its introduction, but it remains a crucial component of Eritrea's economy and identity today.