Somalia, a country where up to 98 per cent of local banknotes are fake, is about to embark on the massive task of taking back control of its currency.
With the help of the International Monetary Fund, Mogadishu plans to print official banknotes for the first time in more than a quarter of a century in an effort to beat the counterfeiters.
No official Somali currency has left the presses since the Horn of Africa nation descended into clan warfare after the collapse of the government in 1991.
In the years that followed, warlords, businessmen and breakaway regions printed counterfeit notes or shipped them in from abroad. The central bank, which ceased operations for much of the 1990s, reopened in 2009. It still has no control over monetary policy.
During the first phase of the plan to introduce the new currency the only denomination printed will be 1,000 shilling notes, worth about five US cents, said Mohamad Elhage, the
IMF’s mission chief in Somalia. Other denominations have fallen out of use, he said.
“We are putting the building blocks of addressing distortions in the economy, including more robust monetary policy and exchange rate policy,” he said. “For that, you need to be able to issue your national currency. But issuing a new currency is not an easy task.”
Mr Elhage said several important issues, including what the government would use to back its new currency, were still being discussed. So was the question of what the conversion rate would be of fake Somali shillings for the new official ones.
Use of Somali shillings, largely limited to the less welloff rural population, comes a poor third to US dollars and electronic money in what is a mostly “dollarised” economy. Dollars in circulation come from the sale of livestock, aid or from remittances, which, at $1.4bn, make up nearly a quarter of Somalia’s gross domestic product. Some dollars in circulation are also fake, though the IMF said it had “no clue” how many.
Peter Little, author of Somalia: Economy Without State, said the country became a darling of libertarians because the absence of government obliged its citizens to figure things out for themselves. Somalis have used an honourbased underground moneytransfer system called hawala and were pioneers of mobile money.
However, Mr Little said, “the economy without a state has kind of run its course”. He said lack of effective government meant there were no public institutions. “Public health and education have really lagged.”
Somalia, a byword for chaos, kidnapping and violence, had shown tentative signs of progress, Mr Little said.
In 2015, the UN upgraded it from “failed” to “fragile” state, although bombs regularly rip through Mogadishu and other parts of the country. Last month, Somalia elected a new president, but the indirect poll had to be held in the heavily fortified airport for fear of attacks from alShabaab militants. Severe drought has put millions of people at risk.
AlyKhan Satchu, a Kenyabased investment consultant, said Somalia’s banknote plan needed a credible international partner.
“If they print somewhere in a basement in Mogadishu it’s not going to work,” he said.
Last August, staff at the central bank, the institution that will oversee the new currency, were caught swapping fake dollar bills for $530,000 of bank reserves, about 5 per cent of the total.
Somalia will have a new, hardtocounterfeit design for its banknotes that may also seek to project a better image of the country, one currency expert said. The old picture on the back of the defunct 100 shilling note a woman with a baby waving a rifle, shovel and rake is unlikely to feature on the new notes, she said.
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