By Nuh Mohamed - Reporter
Mogadishu (Dawan) – For more than two decades, Somalia has increasingly relied on the U.S. dollar, while the Somali Shilling has gradually lost many of the key functions expected of a national currency. The question today: What made people abandon the country's currency, and can it be revived?
These and other issues were discussed on Irmaan Podcast, which hosted economist Abbas Omar Mohamed, who holds a PhD in Economics and currently serves as Director of the Research Center at Mogadishu University.
According to Dr. Abbas, every currency is expected to perform three essential functions:
1. To serve as a measure of value for goods and services, such as when purchasing a house.
2. To facilitate the exchange of goods and services in daily economic activities.
3. To act as a store of value.
When measured against these three criteria, he argues that the Somali Shilling has lost most of its traditional functions.
“Someone looking to buy a house, a vehicle, or evaluate a business usually thinks in dollars. Likewise, people do not trust that the Somali Shilling will maintain its value over time,” he said.
Dr. Abbas explained that the Somali Shilling was a strong currency from the 1960s through the early 1980s. During that period, one U.S. dollar exchanged for approximately six to seven Somali Shillings.
However, conditions changed dramatically in the mid-1980s. Rising debt, armed conflict, economic decline, and the liberalization of exchange-rate controls contributed to a sharp depreciation of the currency. Following the collapse of the central government, the situation worsened significantly.
“A currency needs a single, trusted issuer. Somalia lost that. Various actors began printing money without oversight or control,” he explained.
Although many people are concerned about Somalia’s dependence on the U.S. dollar, Dr. Abbas noted that dollarization has also brought stability in several areas.
Large-scale commerce, pricing mechanisms, and even inflation control have benefited from the use of a stable international currency.
“The dollar became a solution created by circumstance. It was not the result of an official government policy, but rather a response by society to the collapse of confidence in the Somali Shilling,” he said.While the dollar has facilitated trade and commerce, lower-income groups have been disproportionately affected.
People whose earnings are paid in Somali Shillings or who depend on small daily wages do not always have easy access to dollars. As a result, they are often more economically vulnerable than those who regularly receive income in dollars.
Somalia is now one of the world's leading users of mobile money services.Dr. Abbas noted that mobile money has simplified business transactions, money transfers, and economic activity across the country. However, it has also reinforced reliance on the U.S. dollar.
Related articles
“Had mobile money not existed, many people might have returned to using the Somali Shilling. Technology has made it easier for society to function using dollars,” he said.
Dr. Abbas emphasized that restoring the Somali Shilling is about much more than simply printing new banknotes.
According to him, Somalia needs:
• Political stability and confidence.
• Strong financial regulations.
• A capable and independent central bank.
• A national consensus on monetary management.
• Modern financial infrastructure.
“Printing new currency is only a small part of the process. The most important factor is public trust,” he said.
Asked whether the Somali Shilling could make a comeback, Dr. Abbas said that reintroducing it is possible, but not in the immediate future.
He believes Somalia can eventually restore a functioning national currency, but doing so will require long-term planning, strong institutions, and a government capable of effectively managing the monetary system.
“The dollar currently meets a real need. But that does not mean it will remain Somalia’s dominant currency forever. One day, the Somali Shilling can return if the trust it lost is rebuilt,” he concluded.
The challenges facing the Somali Shilling did not emerge overnight, and they will not be solved overnight. The collapse of state institutions, uncontrolled currency printing, and the loss of public confidence all contributed to its decline.
Nevertheless, Somalia has an opportunity to build a modern financial system by leveraging the success of mobile money, strengthening banking institutions, and implementing broader economic reforms.