A peculiar monetary institution emerged during the period of interregnum in Somalia from January 1991 to August 2012. Without a functioning government to restrict the supply of notes in circulation, Somalis found it profitable to contract with foreign printers and import forgeries. The exchange value of the largest denomination Somali shillings note fell from US $0.30 in 1991 to US $0.03 in 2008. However, the purchasing power eventually stabilized at the cost of producing additional notes.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
See Walsh (1995) and the large subsequent literature.
I refrain from using the term “counterfeit,” which denotes the illegal imitation of a currency. Lack of an obvious legal authority in Somalia over the period considered makes it unclear whether issuing forged notes is illegal.
Marshall and Jaggers (2010) classify Somalia as “interregnum” over the period.
The 1000 shillings note was the largest denomination in circulation at the time the state collapsed. Other notes in circulation included those with nominal values of 5, 10, 20, 50, 100, and 500 Somali shillings.
Ali Mahdi Muhammad issued 80 billion Somali shillings in 1991. Although one might argue that he did not have the legal authority to issue notes, the notes in question were not forged. They had been ordered by the Barre regime in December 1990.
A settlement payment of 2.5 billion Somali shillings (US $250,000 in 1999) to Hussein Aideed on the condition that he not block efforts to import the remaining balance of forged pre-1991 notes provides additional evidence as to the profitability of the transaction (Abdurahman 2005, p. 59).
The difference is quite subtle. However, one can spot this variant by looking at the purple centered number 1000, which is green on original and all other known forged variants (Symes 2006, p. 27).
Symes (2006, p. 25) discusses similar design elements found in the old and new shillings notes.
At the end of 1990, 50 shillings exchanged for roughly US $0.01.
The World Bank stopped collecting exchange rate data after the state collapsed in 1991. Other sources of exchange rate data include Abdurahman (2005), which produces end-year exchange rates from 1971 to 2001, and SAACID (2012), which produces monthly exchange rates from Mogadishu’s Bakara market between 2007 and 2012. Both sources are consistent with the data presented herein and are available from the author upon request. The reader is cautioned to avoid Forex data. Although the ISO 4217 currency code SOS still refers to the Somali shilling, Forex uses SOS to refer to the Somaliland Shilling, which has not been issued a unique currency code.
FSNAU (2012) also provides exchange rates with the Kenyan shilling.
Exchange rates for Bay are unavailable in December 1999 and equaled $US 0.155 in January 2000. In calculating the non-Bay average for February 2000, the exchange rate for Sanaag is omitted; whereas 1000 shillings exchanged for US $0.0011 in Sanaag, it ranged from US $0.100 to US $0.116 in the other nine regions for which data is available.
Average exchange rates for January 1996, 1999, and 2001 are calculated from Banadir, Bari, Gedo, Lower Jubba, and Middle Shabelle—the only regions for which data are available in all three months.
According to Mubarak (2003, p. 317), it was common to introduce notes at a five percent discount. It is not known how the standard discount varied over time, but notes ultimately were traded at face value.
The case of Munich-based Giesecke & Devrient, the printing house supplying blank sheets to Zimbabwe during its period of hyperinflation, illustrates the potential for public pressure. After being denounced by German foreign minister Frank-Walter Steinmeier in July 2008, the company agreed to stop deliveries. Concerning fear of personal harm, it is rumored that at least one ex-Malaysian military officer brokering a deal between Hussein Aideed and a foreign printing house was tortured and killed when negotiations went sour.
If Togdheer is excluded, the average falls to US $0.0315.
Monthly exchange rates are unavailable for Banadir in September 2008 and Hiraan in April 2009.
The Erigavo (Sanaag) and Lasanod (Sool) markets are located in the contested territory claimed by both Somaliland and the Puntland Administration. All other markets considered are set in northeast or southern Somalia.
January 2012 is the last month in which Somali shillings to USD exchange rates were collected for Togdheer.
Abdurahman, M. D. (2005). Monetary and exchange rate policies, 1960–2001: The experience of Somalia. Bloomington: Authorhouse.
Aiyagari, S. R., & Wallace, N. (1997). Government transaction policy, the medium of exchange, and welfare. Journal of Economic Theory, 74(1), 1–18.
Alesina, A., & Summers, L. H. (1993). Central bank independence and macroeconomic performance: Some comparative evidence. Journal of Money, Credit and Banking, 25(2), 151–162.
Anderson, T. L., & Hill, P. J. (2004). The not so wild, wild West: Property rights on the frontier. Stanford: Stanford University Press.
Barro, R. J., & Gordon, D. B. (1983). Rules, discretion and reputation in a model of monetary policy. Journal of Monetary Economics, 12(1), 101–121.
Benson, B. L. (1990). The enterprise of law: Justice without the state. San Francisco: Pacific Research Institute.
Buchanan, J. (1962). Predictability: The criterion of monetary constitutions. In L. B. Yeager (Ed.), Search of a monetary constitution (pp. 155–183). Cambridge: Harvard University Press.
Clay, K. (1997). Trade without law: Private-order institutions in Mexican California. Journal of Law Economics and Organization, 13(1), 202–231.
Fischer, S. (1995). Central-bank independence revisited. American Economic Review, 85(2), 201–206.
Food Security and Nutritional Analysis Unit—Somalia. (2012). Market data. Integrated database system. Retrieved December 27, 2012, from http://www.fsnau.org.
Friedman, M. (1960). A program for monetary stability. New York: Fordham University Press.
Guzzo, V., & Velasco, A. (1999). The case for a populist central banker. European Economic Review, 43(7), 1317–1344.
Jerger, J. (2002). How strong is the case for a populist central banker? A note. European Economic Review, 46(3), 623–632.
Kiyotaki, N., & Wright, R. (1989). On money as a medium of exchange. Journal of Political Economy, 97(4), 927–954.
Kiyotaki, N., & Wright, R. (1991). A contribution to the pure theory of money. Journal of Economic Theory, 53(2), 215–235.
Kiyotaki, N., & Wright, R. (1993). A search-theoretic approach to monetary economics. American Economic Review, 83(1), 63–77.
Kostelnik, J., & Skarbek, D. B. (2013). The governance institutions of a drug trafficking organization. Public Choice, 156(1–2), 95–103.
Koyama, M. (2014). The law and economics of private prosecutions in industrial revolution England. Public Choice, 159(1–2), 277–298.
Kydland, F., & Prescott, E. (1977). Rules rather than discretion: The inconsistency of optimal plans. Journal of Political Economy, 85(3), 473–492.
Leeson, P. T. (2007a). An-arrgh-chy: The law and economics of pirate organization. Journal of Political Economy, 115(6), 1049–1094.
Leeson, P. T. (2007b). Better off stateless: Somalia before and after government collapse. Journal of Comparative Economics, 35(4), 689–710.
Leeson, P. T. (2007c). Efficient anarchy. Public Choice, 130(1–2), 41–53.
Leeson, P. T. (2008). Coordination without command: Stretching the scope of spontaneous order. Public Choice, 135(1–2), 67–78.
Leeson, P. T. (2009). The laws of lawlessness. Journal of Legal Studies, 38(2), 471–503.
Leeson, P. T. (2013). Gypsy law. Public Choice, 155(3–4), 273–292.
Li, Y., & Wright, R. (1998). Government transaction policy, media of exchange, and prices. Journal of Economic Theory, 81(2), 290–313.
Luther, W. J. (2012). Evaluating the range of currency denominations circulating in stateless Somalia. Working Paper.
Luther, W. J., & White, L. H. (2011) Positively valued fiat money after the sovereign disappears: The case of Somalia. GMU Working Paper in Economics No. 11-14.
Marshall, M. G., & Jaggers, K. (2010). Polity IV country report 2010: Somalia. Center for International Development and Conflict Management, University of Maryland. Available online http://www.systemicpeace.org/polity/Somalia2010.pdf.
McCallum, B. T. (1995). Two fallacies concerning central-bank independence. American Economic Review, 85, 207–211.
Mubarak, J. A. (1997). The ‘hidden hand’ behind the resilience of the stateless economy of Somalia. World Development, 25(12), 2027–2041.
Mubarak, J. A. (2003). A case of private supply of money in stateless Somalia. Journal of African Economies, 11(3), 309–325.
Powell, B., Ford, R., & Nowrasteh, A. (2008). Somalia after state collapse: Chaos or improvement? Journal of Economic Behavior & Organization, 67(3), 657–670.
Powell, B., & Stringham, E. P. (2009). Public choice and the economic analysis of anarchy: A survey. Public Choice, 140(3–4), 503–538.
Rogoff, K. (1985). The optimal degree of commitment to an intermediate monetary target. Quarterly Journal of Economics, 100(4), 1169–1189.
SAACID. (2012). Somali shilling tracking. Available online www.saacid.org/Somali_Shilling_Tracking.html.
Selgin, G. (1988). The theory of free banking: Money supply under competitive note issue. Totowa: Rowan & Littlefield.
Selgin, G. (1994). Free banking and monetary control. The Economic Journal, 104(427), 1449–1459.
Selgin, G. (2012). Synthetic commodity money. Journal of Financial Stability, 17, 92–99.
Skarbek, D. B. (2010). Putting the ‘con’ into constitutions: The economics of prison gangs. Journal of Law Economics and Organization, 26(2), 183–211.
Skarbek, D. B. (2011). Governance and prison gangs. American Political Science Review, 105(4), 702–716.
Skarbek, D. B. (2012). Prison gangs, norms, and organizations. Journal of Economic Behavior & Organization, 82(1), 96–109.
Stringham, E. P. (2014). Extending the analysis of spontaneous market order to governance. Atlantic Economic Journal, 42(2), 171–180.
Stringham, E. P. (2015). Private governance: Creating order in economic and social life. New York, Oxford: Oxford University Press.
Stringham, E. P., & Zywicki, T. J. (2011). Hayekian anarchism. Journal of Economic Behavior & Organization, 78(3), 290–301.
Symes, P. (2006). The banknotes of Somalia, part 1. International Bank Notes Society Journal, 45(1), 6–30.
Walsh, C. E. (1995). Optimal contracts for central bankers. American Economic Review, 85(1), 150–167.
White, L. H. (1984). Free banking in Britain: Theory, experience, and debate. London: Cambridge University Press.
White, L. H. (1999). The theory of monetary institutions. Oxford: Blackwell.
I am indebted to Peter Boettke, Peter Leeson, George Selgin, David Skarbek, Richard Wagner, and Lawrence H. White for providing valuable comments on an earlier draft of this paper. The usual caveats apply.
About this article
Cite this article
Luther, W.J. The monetary mechanism of stateless Somalia. Public Choice 165, 45–58 (2015). https://doi.org/10.1007/s11127-015-0291-6
- Monetary regime
- Monetary standard
- Somali shilling
- Purchasing power