Currencies of Unrecognized Countries: What Value Do They Have?

Updated: Aug 28, 2019

By: Calum Turnbull

In 1989, Vladimir Lenin’s image gazed into the pockets of more than 150 million people, the entire working age population of the Soviet Union. Adorning the paper Soviet rouble, the ubiquitous symbol of Lenin was an ongoing reminder of the hegemony of the Russian communist party. That is until one day, it wasn't.

In 2017, a group of Russian explorers found a bunker filled with billions of Soviet currency. The trove was large enough to have made any kleptocratic apparatchik blush. However, swimming in a sea of untold riches remained a fantasy for the urban explorers; the currency which would have sustained the life of a Soviet Republic was all completely worthless (BBC, 2017).

As the Soviet Union collapsed, the scramble to rationalise the currencies of 15 independent nations was on. Russia, unable to control the new country's exchange of roubles, saw hyperinflation rack it's economy.

At the same time resurgent nationalists wanted to repaint every aspect of their country in a new historical light. By the end of the century the rouble had been replaced in every nation bar Russia (who withdrew the Soviet note in favour of a new Russian rouble) and Lenin's face had been relegated to the souvenir shops and disused cold war bunkers of the former USSR.

This currency crisis is not an uncommon occurrence for collapsing states, as regulating institutions such as central banks give way to vested interests. Competing entities seek to gain their own economic advantage and a revolutionary mentality looks to tear down the remaining symbols of the old regime. This crisis can normally resolve itself through the reestablishment of state institutions and in some instances through international assistance.

However, for those nations that emerge from a crisis as independent but unrecognised, there are further hindrances to any new currency they may seek to introduce. Artsakh, Transnistria and Somaliland have all taken three different and novel approaches to the introduction of new currencies. Each presents its own challenges and benefits, but provides a unique insight to what it takes for a currency to be introduced in a nation where not even its existence is formally recognised.

The Artsakh Dram

High in the Caucasus mountains, bridging the divide between Asia and Europe, the Republic of Artsakh (also known as the Republic of Nagarno-Karabakh) remains landlocked on all sides by Azerbaijan.

As a principally Armenian province, Artsakh fought to reunite with Armenia when both countries became independent following the collapse of the Soviet Union. When the war was fought to a stalemate, and unity with Armenia proper seemed unlikely, the republic declared its independence and has been in a state of de facto autonomy since 1991 (Kalsto and Blakkisrud, 2008).

With no international recognition and limited means at their disposal, the new republic was left in a difficult position regarding currency. As Russia sought to push out the states still using the rouble through its own monetary reforms, a stark choice presented itself. Accept some semblance of Azerbaijani sovereignty by accepting the manat as its official currency, use the Armenian dram, or create a new currency on its own.

The first option would never have been widely accepted as nationalist sentiment continues to run high in the region due to ongoing skirmishes with Azerbaijan and its stubborn refusal to accept any Astrakh autonomy. What is worse, every Azerbaijani banknote is emblazoned with a map of the country with the territory of Artsakh incorporated; a continuous reminder of Azerbaijani ambitions (Schumacher, 2016).

The latter option, though providing the most autonomy in regards to monetary policy, had significant drawbacks. Principally; as an unrecognised state who’s ties remained principally to Armenia there would be no market for foreign exchange.

This could severely curtail external trade and access to international markets. However, accepting the Armenian dram would preclude Artsakh from any control over its own monetary policy and could lead to a currency shortage should the conflict ever resume and Armenian banknotes could not be brought into the country.

Instead a compromised currency was established; the Artsakh dram. Officially pegged 1:1 to the Armenian dram through the cooperation of the Armenian Central Bank and the Astrakh Ministry of Finance, it works as a parallel currency within the borders of the republic (The Current, 2017).

Whilst the Armenian dram remains the official currency used in day to day transactions, residents have the option to use either the Armenian or Astrakh dram if they wish with both set at an equal value. This ensures that external trade can occur with an internationally recognised currency that can be exchanged in most banks around the world, as well as providing the Republic of Astrakh with the ability to act independently in its own monetary policy if need be.

What’s more, the currency of the country can be emblazoned with national symbols such as the coat of arms, and saints of the Armenian Coptic church (a point of distinction with Muslim-majority Azerbaijan) (Joels Coins, 2019). In this way, Artsakh can preserve its autonomy as well as resolving some of the difficulties of an unrecognised unit of exchange.

The Somaliland Shilling

When the central government of Somalia collapsed in 1991, no new notes could be issued by the central bank and all currency regulations evaporated. The situation was so bad that non-state entities had no economic incentive to not print forged notes “as long as the purchasing power of a note exceeds its cost of production” (Luther, 2015).

The result was prominent warlords purchasing forged pre-1991 notes from foreign mints and releasing them into circulation. As these new notes flooded the market the exchange rate of $0.30 USD per 1000 Somali Shillings, it eventually dropped to the cost of producing new notes, approximately $0.03 USD per 1000 Somali Shillings by 2008 (Luther, 2015).

Somaliland, which had declared independence in 1991 in an attempt to dissect itself from Somalia’s brutal civil war was being battered by these significant devaluations.

In 1994, the Somaliland government decided that for the first time it would print its own currency at an exchange rate of 1 Somaliland shilling for every 100 Somali shillings. The result was ultimately lacklustre. Whilst it succeeded in gaining acceptance in daily transactions it was done “without being explicitly tied to a commodity or reserve currency” (Baron, O’Mahony, Manheim, and Dion-Schwarz, 2015).

For Somaliland “The drawback of this option is that there is no intrinsic value built into the currency at its outset” (Baron, O’Mahony, Manheim, and Dion-Schwarz, 2015). This meant that the Somaliland shilling suffered from inflation and devaluation as the unrecognised state recovered from its own internal conflicts; two civil wars had been fought between 1991 and 1998.

However, once the country stabilised after 1998 the relative peace and stability allowed the establishment of businesses and economic institutions. While no banks were established until after 2013, and the lack of formal international recognition precluded the introduction of overseas institutions to the country, the vacuum was filled by less formal local industries. In particular the growing stability in Somaliland led to an increase in remittances from the diaspora abroad who had fled the conflicts of the 1990s.

This provided some international cash flow and worked to buoy the Somaliland shilling slightly. Remittances were sent through hawala (local remittance and exchange businesses) who handled the cash and filled the void left by the lack of formal banks in the country (Roads and Kingdoms, 2013) (The Guardian, 2014).

The establishment of remittance businesses, and a slightly lower inflation rate than Somalia’s hyperinflated and counterfeited currency (though Somaliland’s inflation was still very high) ensured a modicum of economic progress compared to its neighbour.

The success of the Somaliland shilling meant that Forex designated it the ISO code (the internationally recognised standard for currency designation) for Somalia, replacing the Somali shilling in international money markets (Luther, 2015, p53).

However, the most significant monetary development in Somaliland has been its adoption of a cashless economy. The result of its reliance on remittance and money exchangers meant that when Zaad (a mobile payment service) was introduced to the country it exploded (Roads and Kingdoms, 2013).

Though initially only denominated in USD, it has now progressed to allow transactions in Somaliland Shillings which the government has demanded be the case for all transactions less than $100 USD in value (The National, 2018). The result is that many Somaliland citizens, if they are not already paid directly through Zaad or eDahab (another payment service), will use wheelbarrows to transport the piles of notes they’re paid in to exchange their paychecks onto the online platforms (Roads and Kingdoms, 2013).

As the adoption of their cashless system continues to speed up, it is even possible that international transactions, hyperinflation, and corruption could be leapfrogged without international recognition and the assistance it would bring.

The Transnistrian Ruble

Transnistria fought for its independence from Moldova in 1992 and largely due to the support of the Russian army (military bases in the region were a hold over from the Soviet period) it succeeded. However, like all the other countries within the shared rouble currency zone, Transnistria was pushed out by Russia’s monetary reforms in the 1990s. This left it in a position of being almost de facto Russian territory, around 200,000 of the region’s 500,000 residents are Russian nationals (TASS, 2019), but without the economic integration that would normally entail.

The result was the creation of the Transnistrian rouble; a distinct currency but one that has the implicit backing of the Russian economy. This is not to say Transnistria is without its own assets, roughly 90% of the pre-conflict Moldova’s industrial and energy output was within present-day Transnistria (Borsi, 2007, p46), but issues regarding currency valuation are backstopped by the strength of the Russian economy.

Russia has regularly provided up to 70% of Transnistria’s state budget (The Guardian, 2015) with the latest tranche of $80 million USD in aid being announced in April of 2019 (TASS, 2019). In addition to this the Russian gas giant Gazprom continues to provide gas to Transnistria at reduced rates, with no expectation that the Transnistria government should pay it back.

Rather an arrangement has been made where “[in 2007] Gazprom announced that the debts accumulated by Transnistria alone reached $1.8bn, and that the debts fall under the responsibility of Moldova for repayment, with penalties already imposed on Moldova” (Munteanu and Munteanu, 2007, p.54).

The result of this significant support has been to peg the Transnistrian rouble to the Russian rouble, with the only recent significant fluctuation in the Transistrian currency’s worth occurring at the height of the Russian rouble crisis of 2015 (The Guardian, 2015).

However this was not always the case, and pegged as it was to the Russian economy (and to a lesser extent Moldova’s) the 1990s was a period of significant hyperinflation in the country.

Once the Soviet rouble was removed from circulation, the new paper notes failed to have any backing in reserve currency or state assets (Blakkisrud and Kolso, 2011). The situation was made worse by the Transnistrian government when shortfalls in the budget were made up for by printing more money (Blakkisrud and Kolso, 2011).

The situation was so bad that “one US dollar would buy 257 Transnistrian roubles in January 1994, by the end of 1995 it would buy 210,000, and by 1999, 1.1 million” and smaller denominations of the currency were stamped with additional zeroes to revalue them (Blakkisrud and Kolso, 2011). However, once a new iteration of the rouble was introduced in 2000 the currency stabilised.

To curb rampant hyperinflation in the future Transnistria has also introduced unique anti-counterfeiting measures; notably the introduction of plastic coins in 2014 (Coin Update, 2014). The variously shaped and colourful coinage has generated significant interest among the world’s coin collectors, and has helped drive international demand for the currency outside of Transnistria’s immediate neighbours and Russia (Coin Update, 2014).

It has also helped quell a growing conflict with Poland, as the Polish company that was producing Transnistria’s previous coins led to Moldovan accusations of assistance to the breakaway region (Gazeta, 2005). The new coins will gradually replace the notes of the same denomination, as the old coins are phased out. With the new currency being made in Russia, it is less likely future conflicts over the provision of Transnistrian coinage will continue into the future.


Creating a new currency from scratch is trying under the best of circumstances. Of the states seeking independence throughout the 1990s issues such as hyperinflation, counterfeiting, and currency union were widespread. However, where many states were able to access internationalised solutions (international monetary institutions such as the IMF, development loans, foreign exchange markets) unrecognised countries had to principally rely upon themselves and possibly a foreign patron. Artsakh, Somaliland and Transnistria all approached the challenge differently owing to their own unique circumstances, and exhibited intriguing solutions from a semi-independent currency, a jump to a cashless society, to the introduction of plastic coins. At the very least it can broaden our perception of monetary policy to include more creative out-of-the-box problem solving. Future leaders take note.


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#Transnistria #Somaliland #Artsakh #NagornoKarabkah #Russia #Moldova #Armenia

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