Somalia Set to Launch Credible Currency Board Amid Dollarization

The Central Bank of Somalia is on the cusp of one of its most significant economic reforms since its institutions were rebuilt. The goal is to establish a credible national currency after decades without regular official banknote issuance.

Currently, the economy is heavily dollarized, with US dollars dominating high-value transactions and mobile-money balances. The remaining Somali shilling notes are mostly used for small cash transactions, but they have lost value due to counterfeiting, deterioration, and declining acceptance.

Guleid Osman, a practitioner with eight years of experience in Somalia's financial sector, recommends establishing a legally protected, US-dollar-anchored currency board. However, he stresses that this should only be done after the reserve, fiscal, banking, operational, and public-trust conditions are independently verified.

An orthodox currency board issues domestic monetary liabilities convertible into an anchor currency at a fixed exchange rate, holds foreign reserve assets sufficient to cover those liabilities, and does not conduct discretionary monetary policy. Osman emphasizes that this arrangement can meet the test of being simple enough to understand, strict enough to resist political pressure, and transparent enough to earn public confidence.

Osman outlines ten recommendations for a credible Somali currency board, including establishing the regime in primary law, ring-fencing the currency board balance sheet, requiring full and prudent foreign-reserve backing, and setting the conversion rate through evidence rather than politics.