Somalia is working with the International Monetary Fund (IMF) to reform its national currency, with the aim of restoring the credibility of the Somali shilling by issuing a new SOS 1,000 banknote.
A report produced by the IMF highlights the problems found within the African country, where 95 percent of the currency in circulation is the US dollar. Neighbouring country currencies are often found to be in use in country border areas, and there is growing use of mobile phone payments.
The official currency is the Somali shilling (SOS), but the Central Bank of Somalia (CBS) has not issued any banknotes since 1991. SOS 1,000 denomination banknotes are found in the country, but the vast majority are counterfeit. Even so, virtually all counterfeit notes are accepted as a means of payment, even though they can be easily identified as being fake.
On 16 May 2016, the Managing Director of the IMF approved a Staff-Monitored Program (SMP) for the country, for the period May 2016 to April 2017.
“The SMP is geared toward reestablishing macroeconomic stability, building capacity to strengthen macroeconomic management, rebuilding institutions, and improving governance and economic statistics.”
The IMF has said that there is an urgent need for currency reform in Somalia, and the CBS has consequently adopted guiding principles to achieve this involving two stages.
Somalia to issue 1,000 banknotes
The first stage, which will occur during the SMP period, will involve the central bank issuing new SOS 1,000 banknotes. This, says the IMF, is particularly important to poorer citizens who do not have access to other payment methods such as electronic money transfers.
The second stage will see the central bank issuing additional banknote denominations, assisted by the IMF during the planning and preparation stages.
Key phases of the currency reform
- The issuance of the new SOS 1,000 banknote denomination, once technical requirements are met and funding is secured.
- Actions to eliminate counterfeiting will be identified prior to the new banknote launch.
- Agreed SMP benchmarks will limit the volume of new banknotes that can be issued for circulation so as not to exceed U.S. dollar-denominated assets on the central bank’s balance sheet.
- Somalia’s exchange rate regime will remain free floating.
- Additional new banknote denominations will be issued (to be determined).
- Phase II can only start once Phase I is achieved, and funding from donors is secured.
- Issuing higher banknote denominations will require a reassessment of the exchange rate and monetary policy framework, which will be undertaken in consultation with the IMF.
Commenting about the currency reform, Somalia’s central bank said
“We welcome the IMF’s commitment to providing considerable near-term technical assistance to support our currency reform. However, the CBS and the government lack the funds needed to finance the reform. Grants from international donors will be critical not only for the procurement of new banknotes on the international market but also for implementing this reform. We will also reach out to other central banks for additional technical support and advice to underpin this necessary project.”
Information obtained from the International Monetary Fund Press Release Number 16/248. Read it in full.