EDITORIAL | Somalia’s recent history has mostly been political. But a significant event on an economic scale occurred last month in Northeastern State.
Buried in the swamp of political strife between the federal government and the federal member states, Northeastern State initiated a changed monetary policy aimed at rescuing the much-damaged Somali shilling.
According to a committee chaired by Senator and former Northeastern State President Abdirahman Mahmud Faroole, the idea is to locate the Somali shilling trade, and hopefully make it a popular exchange rate again.
According to Faroole’s recommendations, traders must settle at least 20 percent of their fees or wages in the Somali shilling. This could break the habit of paying employees in dollars, making Somalia the only country in the Horn of Africa where the dollar rather than the local currency is used to settle payments.
But most importantly, merchants will now be able to send and receive less than $ 10 of their money on mobile platforms, something that was previously limited.
The idea is to also have local taxes and fees to be paid to the government to be regulated in the Somali shilling and the transport of the local currency from Northeastern State to other regions will be restricted.
From the outset, this policy is likely to give the local government central bank powers for monetary regulation. It may seem surprising that Somalis hate their currency and prefer the dollar more. In the name of justice, most people point their money at the US dollar exchange rates.
However, Somalia’s case is curious. Since the fall of Siad Barre’s regime in Mogadishu in 1991, Somalia has never had a central monetary policy that works. As a result, no new banknotes have been issued under government authority. Instead, fragmented units have printed notes for local circulation. The effect of this has been the proliferation of false notes as no one can provide the prominent features of what constitutes an authentic note.
Traditionally, the currency becomes a useful means of exchange when it is easily recognizable, is scarce and easy to break down into different units to facilitate exchange. For the Somali shilling, it has lacked these: it is too much, which means you need a bag of banknotes to get a US dollar. It is also not easy to recognize counterfeits from genuine ones, which means that people do not want to use it as a means of exchange, so that you do not lose your goods to counterfeit dealers. And because you need thousands of them to buy a kilo of sugar, the use of Somali shillings has automatically meant higher inflation. In some parts of Somalia, where shillings are accepted, you can buy a dollar at unpredictable exchange rates set only by traders.
Back to Northeastern State. The federal state is the oldest in Somalia would have chosen its currency and gone the way of its northern neighbor Somaliland. But it has chosen to use Somali Shilling instead.
Why would authorities choose a currency whose use they cannot use to protect companies? Faroole claimed that Northeastern State wanted to give value to Shilling, aware that most traders in Northeastern State have it in their pillows, unable to know where to take it.
The value of money seems to be to make them feel that they have value. And it starts with regulating its use and providing avenues for exchanges.
Once society has used available currency, it makes trade secure and thus the value remains stable. This is certainly an experiment whose success should catch the eyes of Somalia’s central bank and hopefully revive a currency that can help Somalia’s economic recovery.
However, there will be no quick fix. Somalia’s other federal states have tried to print the Somali shilling but the environment under which it circulates is largely unregulated. The federal government must now go from just meeting the conditions for debt relief to a stronger and more responsive monetary policy.