Can Somalia Have One Currency When It Cannot Agree on One Political System

By Abdiqani Haji Abdi

Somalia is preparing to put a national currency back into the hands of its citizens at a moment when the country itself is struggling to agree on what kind of state it wants to be. There is no consensus on the electoral system, constitutional disputes remain unresolved, and relations between Mogadishu and Puntland, Jubaland and South West State remain deeply strained. Large parts of the countryside remain outside effective federal control.

The government is preparing one of Somalia’s most consequential economic experiments since the collapse of the state in 1991: restoring the Somali shilling after more than three decades of an economy heavily dominated by the US dollar.

The International Monetary Fund (IMF) has urged Somalia to approach the reform with caution. The Central Bank of Somalia is preparing to introduce new shilling banknotes to replace obsolete currency and remove large quantities of suspected counterfeit notes.

The objective is ambitious: restore confidence in the national currency, strengthen the financial system and expand access to formal financial services. But the timing raises a fundamental question: Can a politically fragmented country successfully restore confidence in a currency whose credibility ultimately depends on the institutions of the state?

No Political Settlement, No Electoral Agreement

Somalia remains locked in a deep political crisis. The Federal Government and its principal political opponents have yet to reach a durable agreement on the country’s electoral system. Constitutional disagreements remain unresolved, while Puntland, Jubaland and South West State have each become deeply embroiled in disputes with Mogadishu over political authority and the future direction of federalism. The risk is that the political divide could widen further.

Large rural areas remain outside effective federal government control, with Al-Shabaab maintaining influence across significant parts of the country. If the current trajectory continues, additional territories and local administrations could find themselves operating beyond the practical reach of Mogadishu. That presents a fundamental problem for monetary policy.

A national currency requires more than a central bank and newly printed banknotes. It requires confidence in the institutions issuing the money and confidence that the currency will be accepted across the country.

The Legitimacy Problem

The Federal Government led by President Hassan Sheikh Mohamud faces significant political opposition. Critics argue that the administration lacks the broad political consensus needed to undertake a reform as consequential as restoring the national currency. The currency question therefore cannot easily be separated from Somalia’s wider political crisis.

If major political actors and sections of the population reject the government’s political direction, persuading citizens, businesses and regional administrations to move away from the dollar could prove extremely difficult.

For decades, the dollar has filled the vacuum created by the collapse of Somalia’s formal monetary and banking institutions. It remains widely used for major transactions, savings, trade and pricing. Replacing that system will require far more than issuing new notes.

The IMF’s Warning

The IMF has emphasized that introducing new banknotes alone will not restore confidence in the Somali shilling. The credibility of the reform will depend on the independence and capacity of the Central Bank, adequate foreign-exchange reserves, effective monetary policy, control of inflation and strict limits on monetary financing of government spending. That final issue is particularly important.

A government that cannot generate sufficient domestic revenue to finance its budget faces a dangerous temptation when it controls the machinery for issuing national currency: financing expenditure through money creation.

Such a policy can rapidly undermine confidence in the currency, fuel inflation and erode household purchasing power. Currency printing is not revenue.

Without adequate taxation and other sustainable sources of government income, monetary financing can turn a currency reform intended to restore confidence into a mechanism for destroying it.

Somalia’s Fiscal Reality

This is where Somalia’s political and economic crises intersect. The government must establish a sufficiently credible and predictable domestic revenue base before relying heavily on monetary instruments to finance public expenditure.

That means strengthening taxation, customs administration, public financial management and the institutions responsible for collecting and protecting government revenue. It also means ensuring that monetary policy is not subordinated to short-term political spending.

If the government attempts to introduce the shilling while facing weak fiscal capacity, limited territorial control, political opposition and unresolved disputes with federal member states, the reform could face serious credibility problems.

The Dollar Will Not Disappear Overnight

The IMF-backed reform does not mean the US dollar will suddenly disappear from Somalia’s economy. The dollar is expected to remain an important medium of exchange during the initial stages of the transition, particularly in private commerce and larger transactions.

The challenge will be creating sufficient confidence in the shilling for people and businesses to voluntarily use it. That confidence cannot simply be imposed.It must be earned.

Somalia’s currency experiment therefore carries a lesson that cannot be separated from its political crisis. A national currency ultimately depends on national institutions.

If Somalia cannot reach agreement on its electoral system, constitutional order and federal political settlement, it will be difficult to convince citizens that its monetary system is stable and predictable.

Puntland, Jubaland, South West State and other areas outside effective federal control cannot simply be assumed to function as a single monetary market because Mogadishu introduces new banknotes. And where Al-Shabaab controls territory or exercises substantial influence, the reach of the Central Bank and federal financial institutions is inevitably constrained. The danger is not that introducing a Somali currency is inherently wrong.

The danger is attempting to impose monetary unity before Somalia has achieved sufficient political and fiscal unity to sustain it. The Somali shilling can become a symbol of national recovery—but only if the institutions behind it are credible, the Central Bank is sufficiently independent, government revenue is strong enough to finance expenditure and citizens believe their money will retain its value. Otherwise, a reform intended to restore monetary sovereignty could expose the country to another crisis of confidence.

Somalia does not merely need a new currency. It needs the political legitimacy, fiscal discipline and institutional credibility required to make that currency worth trusting.

Abdiqani Haji Abdi

Email: [email protected]