EDITORIAL: Somalia’s future monetary policy may find lessons in Puntland
EDITORIAL | Somalia’s recent story has mostly been political. But a significant incident on the economic scale occurred last month in Puntland.
Buried in the mire of political bickering between the Federal Government and the Federal member states, Puntland launched an amended monetary policy meant to rescue the much-maligned Somali Shilling.
According to details provided by a Committee chaired by Senator, and former President of Puntland Abdirahman Mahmud Faroole, the idea is to localise trading on the Somali shilling, and hopefully make it a likeable means of exchange again.
Under the recommendations of Faroole, traders will have to settle at least 20 per cent of their port clearance fees or salaries in the Somali shilling. This could break the habit where employees are paid in dollars, making Somalia the only country in the Horn of Africa where the dollar rather than the local currency is used to settle payments.
But most importantly, traders will now be able to send and receive less than $10 of their money on mobile platforms, something that was previously restricted.
The idea is to also have local taxes and fees payable to the government to be settled in the Somali shilling and the transportation of the local currency from Puntland to other regions will be restricted.
From the outset, this policy is likely to grant powers of monetary regulation to the local state Central Bank. It may look surprising that Somalis loathe their currency and prefer the dollar more. In fairness, most people peg their monies on the exchange rates with the US dollar.
Somalia’s case, is, however, curious. Since the fall of Siad Barre’s regime in Mogadishu in 1991, Somalia has never had a central monetary policy that works. As a result, no new currency notes have been printed under the authority of the government. Instead, splintered entities have printed notes for local circulation. The effect of that has been the proliferation of fake notes as no one can provide the salient features of what constitutes an authentic note.
Traditionally, the currency becomes a useful means of exchange when it can easily be recognised, is scarce and is easy to be broken down into various units to ease exchange. For the Somali shilling, it has lacked these: It is too plenty, which means you need a sack of notes to get one US dollar. It is also not easy to recognise fakes from genuine ones, which means people are unwilling to use it as a means of exchange, lest you lost your goods to fake dealers. And because you need thousands of them to buy a kilo of sugar, the use of Somali shillings has automatically meant higher inflation. In some parts of Somalia, where the shilling is accepted, you could buy a dollar at unpredictable exchange rates only traders determine.
Back to Puntland. The federal-state is the oldest in Somalia would have chosen its currency and gone the path of its northern neighbour Somaliland. But it has chosen to use the Somali Shilling instead.
Why would authorities pick on a currency whose use they can’t bank on to protect businesses? Faroole argued Puntland wanted to give value to the Shilling, aware that most traders in Puntland have it in their pillows, unable to know where to take it.
The value of the money, it appears is in making those with it to feel they carry value. And it begins by regulating its use and providing for avenues for exchanges.
Once the community steadies the use of available currency, it makes trading certain and hence value remains stable. This is surely an experiment whose success should catch the eye of the Central Bank of Somalia and hopefully revive a currency that could help Somalia’s economic recovery.
There will be no quick solution though. Somalia’s other federal states have attempted to print the Somali Shilling but the environment under which it circulates remains largely unregulated. The Federal Government must now move from merely meeting conditions for debt relief to a stronger and more responsive monetary policy.