2017-02-25 Sat

The Somali government was dissolved in 1991 which led to various political, economic and social outfits trying to replace the government. The monetary system was handled by the rich and businessmen using counterfeit money. This destroyed the country economically leading to an “Economy Without State.”

Somalia’s new government hopes to make things better. With funding from International Monetary Fund (IMF) and the World Bank, they would be issuing new banknotes this year. Many experts, on the other hand, think that even though introducing new currency notes is crucial at this point in time, the decision should not be rushed. The government should consider all the stakeholders before going ahead.

Bretton Woods institutions have been funding Somalia which is not enough. Corruption has also led to high inflation rates, increasing dependency on dollarized economy. Some suggest that the country will have to make collaborative partnerships with trusted institutions across the globe else things could get as ugly like the condition in Nigeria.

The 1,000 shilling note is the only currency in Somalia currently and other denominations like 500, 50 and 20 shillings were not circulating after the war or over the years. Small denominations are expected to be introduced. 98% of the currently circulating notes are fake due to which the purchasing power of these new notes in comparison to the already circulating ones needs to be considered.

Private and public sectors will have to be opened up for investors, trade and business. Two-thirds of Somalia’s $6 billion GDP goes into imports and $1.4 billion of that is credited to remittances from Somalis living in the diaspora.

During the war, people opted for mobile money instead large bulky notes for day to day transactions. 37% of the population have mobile accounts compared to just 8% with a financial institution as per experts. E-payment transactions are also all made in dollars making telecom companies owners of large foreign exchange reserves. Other experts believe that mobile transactions should be encouraged which in turn will lead to more transparency in the economy.