“Following the political crisis, the older banking system collapsed, including the Central Bank of Somalia’s right of being the sole and exclusive issuer of the Somali banknotes and coins, and as of today, the formal commercial banking activity in the context of Monetary Policy does not exist and there reserve money is wholly composed of bank notes issued by various unofficial issuers. Since 1996, Warlords and business people have been printing Somali Shillings Bank notes. The Central Bank of Somalia is resuming its role as the sole and exclusive authority to issue banknotes and coins as a first step to take control of monetary policy.”

Currency traders at work

A Currency Issued in the Name of a Central Bank that No Longer Exists
Somalia’s mighty shilling : Hard to kill / Mar 31st 2012

Use of a paper currency is normally taken to be an expression of faith in the government that issues it. Once the solvency of the issuer is in doubt, anyone holding its notes will quickly try to trade them in for dollars, jewellery or, failing that, some commodity with enduring value (when the rouble collapsed in 1998 some factory workers in Russia were paid in pickles). The Somali shilling, now entering its second decade with no real government or monetary authority to speak of, is a splendid exception to this rule.

Somalia’s long civil war has ripped apart what institutions it once had. In 2011 the country acquired a notional central bank under the remit of the Transitional Federal Government. But the government’s authority does not extend far beyond the capital, Mogadishu. The presence of the Shabab, a murderous fundamentalist militia, in the south and centre of the country, makes it unlikely that Somalia will become whole anytime soon. Meanwhile, 2.3m people are in need of edible aid. Why, then, are Somali shillings, issued in the name of a government that ceased to exist long ago and backed by no reserves of any kind, still in use?

One reason may be that the supply of shillings has remained fairly fixed. Rival warlords issued their own shillings for a while and there are a fair number of fakes in circulation. But the lack of an official printing press able to expand the money supply has given the pre-1992 shilling a certain cachet. Even the forgeries do it the honour of declaring they were printed before the central bank collapsed: implausibly crisp red 1,000-shilling notes, with their basket weavers on the front and orderly docks on the back, declare they were printed in the capital in 1990.

Abdirashid Duale, boss of Dahabshiil, the largest network of banks in Somalia, says that his staff are trained to distinguish good fakes from the real thing before exchanging them for dollars. Others accept the risk of holding a few fakes as a cost of doing business (shillings are often handed over in thick bundles of 100 notes). By this alchemy, an imitation of a thing which is already of notional value turns out to be worth something.

Shelling out shillings
A second reason for the shilling’s longevity is that it is too useful to do away with. Large transactions, such as the purchase of a house, a car, or even livestock are dollarised. But Somalis need small change with which to buy tea, sugar, qat (a herbal stimulant) and so on. Many staples are not produced domestically, making barter impractical. The shilling serves as well as shells or beads would as a medium of exchange. It also has a role as a secondary store of value. Once a year the economy gets an injection of dollars when goats are sold to Saudi Arabia to feed pilgrims undertaking the haj. Herders need to find ways to save money received then for spending over the next year. The shilling is one of them.

The shilling has a further source of strength. Since each party to a transaction is likely to be able to place the other within Somalia’s system of kinship, the shilling is underpinned by a strong social glue. Paper currencies always need tacit consent from their users that they will exchange bills for actual stuff. But in Somalia this pact is rather stronger: an individual who flouts the system risks jeopardising trust in both himself and his clan.

Having survived against great odds, the shilling now faces a serious challenge in the form of dollars transferred by mobile phone. Zaad, a mobile-money service, allows users to pay for goods by texting small amounts of money to a merchant’s account, and is proving popular in Mogadishu. But the shilling’s endurance suggests it should not be counted out. If it can survive without a government, it can probably brush off modern technology, too.


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Somalia Central Bank officially re-opened by PM / February 2, 2011

“Somali Prime Minister Mohamed Abdullahi Mohamed (Farmajo) had made as one of his top priorities the re-operationalisation of the country’s central bank which had grinded to a halt since 1991. The Central Bank of Somalia was established on June 30, 1960 and has now opened its doors to the public. The Prime Minister said the bank opening is an important symbol for the independence and sovereignty of somalia, as well as the growth and stability of the institution. The Central Bank of Somalia was one of the largest financial institutions in Somalia, with 130 branches located throughout the country. The bank of the nation was destroyed by warlords and Criminal gangs that overthrew Somali President Mohamed Siad Barre in 1991.”


“In 1996 Mohammed Farah Aideed, still the head of one of the major forces in Somalia, placed an order for Somali shillings with the British American Banknote Company, a Canadian company based in Ottawa. Despite condemnation in Canada for the transaction, the banknotes were printed and delivered to Somalia. The deal was evidently brokered by a Malaysian businessman on behalf of Aideed. However, Mohammed Farah Aideed never saw the money, as he died on 1 August 1996 from wounds received during a battle in Mogadishu. Ultimately, his son, Hussein Aideed, and other members of his clan received four shipments of the currency that was estimated at 165 billion Somali shillings.

The notes printed for Aideed were probably in denominations of 500 and 1000 shillings, although this has not been confirmed, and they can be identified in a number of ways. Firstly, the notes carry the date ‘1996’ at the bottom of the notes and they are signed by Ali Amalow as Guddoomiyaha. Amalow was appointed Governor of the Central Bank of Somalia in October 1990, just prior to the fall of Siad Barre, and he did not sign any ‘official’ notes issued by the Central Bank of Somalia. Secondly, the use of the letter ‘D’ as the series identifier for the 1000-shilling notes suggests that these were the notes introduced by Aideed, as it can be expected that he would use the existing identifier for this series. The only known 500-shilling note issued after the fall of Siad Barre uses the same font for the serial numbers as the 1000-shilling note with the ‘D’ series identifier, suggesting they were printed at the same time. However, the use of ‘A’ as the series identifier for the 500-shilling notes does not follow the use of ‘D’ for the previously issued notes and therefore there is some doubt as to whether these notes were printed for Aideed.

The bold initiative by Aideed, of issuing his own notes, did not go unnoticed by other faction leaders in Somalia. In 1999 the Puntland administration contracted printers in Indonesia to produce Somali shillings for their own use. These notes can be recognized by the different colour for the number ‘1000’ that appears in the centre of the notes. On these notes the number is purple, whereas for all other printings of this note it is green. In fact the differences are more varied, but this is the chief distinguishing point. On the original notes, there is a green, orange and purple intaglio print, but on the Indonesian-printed notes there is no intaglio printing. Instead the colours are printed by lithographic printing and areas that should have been green are printed in purple.

Following the conclusion of the Somali National Peace Conference in Djibouti on 22 August 2000, a Transitional National Government was elected with Abdiqasim Salad Hassan chosen as president. As there had been a dozen different peace conferences over the previous ten years with no satisfactory outcome, this result looked promising. Relocating to Mogadishu, the government moved tentatively and soon the control of the government moved to businessmen who worked in concert with the politicians. One of the products of this collaboration was that the Transitional National Government became involved in importing fake banknotes to help prop up the economy. The Transitional Government imported Somali shillings from an unknown source but when it became apparent that almost anyone could have money printed and imported into the country, many business men did just that.

In February 2001 Mogadishu businessmen imported 60 billion Somali shillings into the country. In order to gain control of the economy, the Transitional Government was forced to purchase this money from the businessmen for the cost of printing and transportation. An undertaking was also elicited from the businessmen that they would import no more money. However, later shipments of banknotes were brought into the country under the protection of the Transitional Government. Endnote

Around May 2000 it was reported that Mohamed Hasan Nur, the leader of the Rahaweyn Resistance Army, had visited Italy and had arranged to have 500- and 1000-shilling notes printed in Italy and shipped to Somalia. He evidently intended that the currency would circulate in the Bay and Bakool regions of Somali, which were under his control. Endnote (It is not known whether these notes were actually printed and delivered.)

The importation of fake currency was not limited to the old Somali shilling. It was only a matter of time before importations of fake new shillings began to appear and notes of this issue with a prefix commencing with ‘X’ are believed to be an ‘unauthorized’ importation. The new shillings were apparently imported by Mogadishu businessmen who probably found that there was more profit to be made in importing the higher value notes.

It is not easy to follow all the trading, importing and printing of fake Somali banknotes. Certainly, the printing of notes by the British American Banknote Company for Mohammed Farah Aideed is one of the few well-documented cases of the printing of fake notes. However, many reports implicate Canada, Indonesia and Malaysia as sources of fake money without nominating the recipient or the printer. One report nominates the Indonesian company Pt. Pura Baru Kudus, located in Java, as involved in printing US$4 million worth of Somali bank notes, but there is no indication whether they were the suppliers for the Puntland administration or for another authority. While most of the businessmen importing currency are nameless, Mohamed Abdulle Daylaaf and Hussein Goley of Mogadishu are two businessmen who have been reported as importers of fake currency.

(There is one interesting aspect to the factions circulating fake currency in Somalia. On 3 September 1998 Mohamed Said Hersi, known as ‘General Morgan’, declared Jubaland independent. Jubaland is in southern Somalia, bordering on Kenya, and has as its capital Kismayo. Of all the reports concerning fake currency, none have been found in reference to the administration led by Hersi. However, his reign was short, surviving only until June 1999, and it is understood that he may not have had the finances to purchase a stock of banknotes.)

In many ways it is surprising that the importation of fake Somali shillings continues to occur. When the importation of the fake notes first occurred, importers realized a huge windfall due to the seigniorage gained in the issuing of the currency. Seigniorage is the difference in the cost of producing the banknotes and the value of the note when placed into circulation. It was reported by some Somali businessmen that the cost of producing a 1000-shilling note was US$0.028. In 1991 1000 shillings was worth US$0.20 and so the seigniorage (excluding transport and storage) was US$0.172 per 1000-shilling note. The exchange rate fluctuated over the ensuing years, but towards the end of the 1990s the rate plunged dramatically to the extent that, by 2001, a 1000-shilling note was equivalent to US$0.0416 and, if the cost of production remained steady, the seigniorage had dropped to US$0.0136. At some point in time, if inflation continues, it becomes unprofitable to print 1000-shilling notes. This is why 500-shilling notes are no longer printed. However, where 50-new-shilling notes are printed, it remains profitable for a much longer period.

A significant aspect to consider in regard to the distribution of fake shillings is the social and economic effect on the market into which the currency is introduced. If fake currency floods the market, it immediately devalues the currency in circulation. In Somalia, where the poor are affected, this causes distress amongst the majority of people who have lower incomes. The BBC News reported in June 1999 that two people were killed by market guards in Mogadishu after riots broke out following the importation of fake currency. Endnote By this time the public of Somalia were all too aware of the economic impact of the importation of fake currency and in this instance the riot was the result of people venting their anger.

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