The official currency is the Ethiopian birr ETB. You are only supposed to import and export 100 birr. Cash transaction is still the norm, although credit cards Visa & Mastercard are becoming more widely accepted in mid & high-level hotels and service providers such as travel agency. Vendors' credit card machined do not work most of the time so you'll need to pay cash instead.
€1 = ~25 birr and USD1 = ~20 birr as of January 2015. Coins are available in 1, 5, 10, 25, 50-cents and 1-birr denominations, and banknotes come in values of 1, 5, 10, 50, and 100 birr.
If you have Visa or MasterCard-affiliated debit card you are able to withdraw cash from most ATMs around the country max withdrawl is 4,000birr. Plus-network connected cards are only accepted at Wegagaen Bank's ATMs. ATMs are available in most places tourists visit except the Simien Mountains however Visa-connected cards remain the most easily accepted cards.
Any major bank branch in Ethiopia can change foreign currency into Ethiopian Birr. The rates are the same everywhere. There are dozens of commercial banks in Addis, including in the Sheraton and Hilton hotels, and in the corner of the baggage claim hall at the airport. Most cities and towns that tourists visit will have at least one commercial bank, except for villages in the Omo valley. US dollars, euros, or British pounds are the best currencies to carry.
It is illegal to change money on the black market although the rates are about 10% better than what you can get from the banks USD1 = 23 birr Jan 2015.
In cities like Addis Ababa and Dire Dawa little accepted in Dire Dawa, not like Addis the US dollar is mostly accepted. In some shops in Addis Ababa the prices will be written in ETB+US$. Some ATMs in Addis Ababa give out both U.S. dollars and birr. Most hotels in Addis Ababa accept US dollars. All airports in Ethiopia accept US dollars.
You cannot obtain US dollars in Ethiopia through legal means unless you have a flight ticket to leave the country. This means that if you need dollars e.g. to get a Djibouti visa and don't have a flight ticket to leave Ethiopia you will need to either change money on the black market or ensure that you have enough US dollars on you.
If you change money officially, it's imperative to keep all the exchange slips in case you want to re-convert any left-over Birr back into foreign currency. However, bear in mind that changing money back into foreign hard currency is not easy and you need to go to a branch of the Commercial Bank of Ethiopian in a major city.
As Birr has the tendency to be devaluated over time, change/withdraw from ATM what you need on a regular basis instead of change a large stash of cash.