Crash of the shilling causes harship and economic havoc across Somalia

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Keydka sawirrada/Ergo Photo | A Somali market/File/Ergo

Radio Ergo 25 August, 2017 SOMALIA


(ERGO) - The refusal of shops and businesses across the country to receive payment in Somali shillings has been causing extra hardship for ordinary households, who are already burdened by rising prices of food resulting from the drought.

Traders have been rejecting the local bank notes in circulation, including counterfeit shillings issued in Puntland and other shillings that have been printed by various groups of big businessmen over time.

Markets in Hiran, Galgadud, Mudug, Nugal, Bari, Sool, Togdheer and parts of Somaliland have all rejected the shillings in circulation. Only the biggest denomination 1,000 shilling note is being accepted.

Shops and businesses have only been accepting US dollars, which has become the de facto national currency. In regions bordering Ethiopia, the birr is also being accepted.

As a result, tens of thousands of poorer people who do not have access to dollars are finding the cash they have in shillings is totally worthless.

Whilst there have been similar problems involving the currency before, because of the lack of central regulation, this is the first time that most regions across the country have acted together in rejecting the shilling.

Abdinur Ali Mohamed, a professor at Simad University in Mogadishu, told Radio Ergo the problem was caused by the printing of versions of the shilling by groups of influential traders at will.

“They [the traders] treat the currency like any other commodity they trade in and stock it depending on their needs,” he said.

He added that the regional authorities had assisted the business people in the activity of printing counterfeit cash in the various regions.

Samba Thiam, head of the International Monetary Fund (IMF) office in Somalia, said 98 per cent of the Somali shillings in circulation are counterfeit notes that have been printed by business people.  He added that the last time the Somali government legally printed the Somali shilling was in 1990, before the civil war.

Yahya Aamir, a former advisor from the World Bank, believes that the uncontrolled printing of Somali shillings has been a major setback to security and economic stability in the regions, including those that have functioning regional governments.

Speaking to Radio Ergo by phone, he said the Central Bank of Somalia is supposed to independently govern monetary affairs and establish exchange rates. However, these two major functions, he said, are actually being carried out by politicians and government officials.  

The central bank is mandated to protect the value of the currency and to develop economic growth strategies but is actually limited to handling government budgets and paying government officials, he said.

Meanwhile, the dollar has been elevated to a high status due to its availability in cash and in electronic mobile money. The Somali diaspora send remittances largely in dollars.  Most humanitarian cash transfers are also made in dollars.

Ahmed Warsame, who lives in Abudwaq near the Ethiopian border, told Radio Ergo the Somali shilling has not been used there since July, when traders in some regions started to refuse the notes in favour of the birr or the dollar only.

Ahmed was forced to quit his job at a construction site, where they were paying in shillings, and find work in a local restaurant that agreed to pay him in dollars to his mobile phone at the end of the month. He is among the huge numbers of people struggling to make ends meet on a low income.

There have been protests in some towns against the rejection of the shilling by businesses. Regional governments have tried to pressure local traders to accept the local notes, but as they do not control exchange rates they have been unable to convince traders to accept money that has barely any value.

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