Somalia's failure to restore a functioning national currency over three decades after its collapse raises questions about the Central Bank of Somalia's performance under Governor Abdirahman Mohamed Abdullahi, who took office in April 2019. The bank has pursued institutional restructuring, expanded banking supervision, and introduced new financial regulations. However, the country remains heavily dependent on the U.S. dollar, and the Somali shilling has not returned as a credible means of payment. Despite over seven years in office and continued international support, the central bank has yet to restore the national currency or provide a firm timetable for its reintroduction.
Governor Abdullahi described the difficulties he faced when assuming leadership, citing shortages of financial resources, technical expertise, and qualified personnel. He estimated that the initial institutional challenges stood at 85%. Those constraints explain the difficulties in rebuilding the institution but also highlight the leadership's responsibility to turn years of restructuring and international assistance into measurable results. The central bank previously had limited institutional capacity, operating mainly as a fiscal agent for the government and supervising five commercial banks, with most operations conducted manually.
The most significant unresolved challenge is Somalia's continued inability to restore a functioning national currency. The central bank has not issued new Somali shilling banknotes since 1991, leaving the economy heavily dollarized. Existing shilling notes are largely old or counterfeit, while the U.S. dollar dominates commercial transactions. The International Monetary Fund has identified the absence of a functioning national currency as a major constraint on Somalia's monetary policy, limiting the central bank's ability to influence domestic economic conditions.
Abdullahi acknowledged that widespread dollarization restricts the institution's ability to conduct effective monetary policy, leaving it with limited influence over the country's financial environment. The governor said the bank was working toward reintroducing the Somali shilling through a dual-currency arrangement, with new shilling banknotes backed by sufficient foreign-exchange reserves. However, the plan remains dependent on several conditions, including legislation establishing the currency board, amendments to the Central Bank Act, and adequate reserve financing.
Despite describing currency restoration as a major strategic priority, Abdullahi did not provide a specific date for the return of the shilling. He said the bank was prioritizing operational readiness rather than setting a launch deadline. This leaves Somalia without a clear timetable for ending a monetary arrangement that has persisted for over three decades, raising questions about how quickly the central bank intends to move from planning to implementation.
The central bank has pointed to the growth of its banking supervision as evidence of institutional progress, with the number of commercial banks under its supervision increasing from five to 15, alongside the introduction of a risk-based regulatory framework. However, the expansion of regulated banks has yet to translate into widespread access to conventional banking services, with approximately 87% of Somalis using mobile money and only 19% having traditional bank accounts.
Building an institution capable of independently managing monetary policy remains a major challenge, with the central bank relying heavily on international assistance for institutional restructuring, technical assistance, and workforce development. The central test for the central bank is whether it can develop the expertise, systems, and financial resources needed to sustain reforms independently, enforce regulations, and establish a credible monetary framework. Diaspora remittances, estimated at $3.2 billion annually, offer an opportunity to support domestic investment, but Somalia continues to face challenges in directing more resources into productive investment through formal financial institutions.
Key points
- The Central Bank of Somalia's failure to restore a functioning national currency despite over seven years of efforts and international support.
- The institution's performance is measured by its ability to safeguard financial stability, develop an effective monetary policy framework, and restore public confidence in the national currency.
- Somalia's economic recovery is hindered by its continued dependence on the U.S. dollar and the limited reach of conventional banking services.
