Somalia’s Dollar Dependence Highlights Unfinished Central Bank Reforms
MOGADISHU, Somalia — More than 30 years after Somalia’s monetary system collapsed, the country still has no functioning national currency—a reality that is putting renewed focus on the performance and leadership of its central bank.
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Since Governor Abdirahman Mohamed Abdullahi assumed office in April 2019, the Central Bank of Somalia (CBS) has undertaken institutional restructuring, strengthened banking supervision and introduced new financial regulations. Yet the economy remains deeply reliant on the U.S. dollar, and the Somali shilling has not regained its role as a trusted means of payment.
The contrast between administrative reform and the bank’s core monetary responsibilities is becoming harder to ignore. After more than seven years under Abdullahi’s leadership, and with sustained backing from international financial institutions, the central bank has neither restored the national currency nor set a firm date for its return.
Speaking to African Business, Abdullahi recalled the conditions he found when he took charge, pointing to limited funding, a shortage of technical expertise and an insufficient number of qualified employees.
He said the institution had previously operated with little capacity, functioning largely as the government’s fiscal agent while supervising five commercial banks. Much of its work was carried out manually. Abdullahi estimated the initial institutional shortfall at 85%.
Those circumstances illustrate the scale of the rebuilding effort. They also underscore the pressure on the bank’s leadership to convert years of restructuring and international support into concrete outcomes.
A national currency remains out of reach
Somalia’s most consequential unresolved monetary issue is its failure to bring back a functioning national currency.
The central bank has not printed new Somali shilling notes since 1991, leaving the country’s economy heavily dollarized. Much of the existing shilling currency is old or counterfeit, while the U.S. dollar is used for commercial transactions throughout large parts of the country.
The International Monetary Fund has described the lack of a functioning national currency as a major obstacle to Somalia’s monetary policy, restricting the central bank’s ability to shape domestic economic conditions.
Abdullahi has acknowledged that widespread dollar use limits the bank’s capacity to conduct effective monetary policy and reduces its influence over the broader financial environment.
He said the institution was preparing to reintroduce the Somali shilling under a dual-currency model, allowing the local currency to circulate alongside the U.S. dollar.
The proposed framework would use a currency board pegged to the dollar. New shilling notes would be issued only with adequate foreign-exchange reserves to support them.
Before that system can be introduced, however, several requirements must be met. They include legislation creating the currency board, amendments to the Central Bank Act, sufficient reserve funding and agreements for printing new banknotes.
Although Abdullahi has called currency restoration a central strategic objective, he has not announced a date for the shilling’s return. Instead, he said the bank was concentrating on operational preparedness rather than committing to a launch deadline.
Somalia therefore remains without a clear path for ending a monetary system that has lasted more than three decades. The absence of a timetable also leaves unanswered questions about when the central bank plans to move from preparation to execution.
Banking expansion, limited financial inclusionThe CBS has cited progress in banking supervision as one indication that the institution is being rebuilt.
Abdullahi said the number of commercial banks overseen by the central bank had risen from five to 15, while regulators had adopted a risk-based supervisory framework.
That increase in regulated institutions, however, has not produced comparable access to traditional banking for most Somalis.
Figures provided by the governor indicate that about 87% of Somalis use mobile money, compared with just 19% who hold conventional bank accounts.
Mobile money is now a crucial part of Somalia’s economy, enabling households and companies to make payments despite the lack of a functioning national currency. At the same time, its dominance points to the narrow reach of conventional banks and the broader weaknesses of the financial system.
The central bank’s role is not limited to licensing lenders and enforcing regulations. It must also help expand financial inclusion by improving access to savings, affordable credit and formal banking services.
The divide between the growth of financial regulation and the public’s access to banking remains a significant measure of the institution’s unfinished work.
Dependence on international assistanceBuilding a central bank that can manage monetary policy independently remains another substantial test.
Abdullahi said the institution had depended heavily on the International Monetary Fund and World Bank for restructuring, technical support and the development of its workforce.
That assistance has been important in rebuilding Somalia’s financial institutions after decades of conflict and institutional breakdown. Still, external support cannot substitute for domestic expertise, durable systems and effective implementation.
The central bank’s broader challenge is to develop the skills, infrastructure and financial strength required to maintain reforms on its own, enforce rules consistently and establish a credible monetary framework.
Abdullahi also identified diaspora remittances—estimated at $3.2 billion a year, or roughly 22% of gross domestic product—as a potential source of domestic investment.
Despite the size of those transfers, Somalia continues to struggle to channel a larger share of the money into productive investment through formal financial institutions.
The leadership question
Somalia’s completion of the Heavily Indebted Poor Countries debt relief programme, along with advances in financial regulation, marks important progress in its economic recovery. Those gains, however, have not addressed the central bank’s most basic monetary problem.
The institution’s record cannot be judged only by the number of commercial banks it supervises, the regulations it adopts or the international relationships it maintains. Its fundamental duties include protecting financial stability, developing an effective monetary policy system and restoring trust in the national currency.
For Abdullahi, who has headed the bank since April 2019, the continued absence of a functioning Somali shilling remains a major unresolved issue after more than seven years in office.
The governor has maintained that currency restoration must proceed carefully, with adequate reserves, legislation and institutional safeguards in place before new notes are issued. Such caution reflects the danger of introducing an unstable currency into an already vulnerable economy.
But the need for safeguards does not eliminate the need for defined goals, measurable results and accountability for delivery. Without a clear timetable, it remains difficult to determine when the proposed currency system will become operational or how the bank plans to address the barriers holding it back.
Somalia’s prolonged currency crisis ultimately exposes the distance between institutional reform and the central bank’s most important responsibilities. Despite years of restructuring and international assistance, the country still lacks a functioning national currency, while dependence on the U.S. dollar continues to constrain monetary policy.
Restoring the Somali shilling and recovering monetary independence are therefore the defining tests of the central bank’s leadership. Until the country sees tangible progress, the absence of a credible national currency will remain the clearest sign of reforms left unfinished.
AXADLETM
