Unrecognized Currencies: The Somaliland Shilling
By: Alcione Nawroski
The Somaliland Shilling
The Somaliland Shilling (SLSH) is the official currency of Somaliland, an unrecognized country internationally recognized as an autonomous region of Somalia. While Somalia is an heiress of the Italian colony, Somaliland is heiress of a British colony.
The term 'Shilling' was widely used, especially by the former British colonies, and is still quite present in some African and Asian countries.
In the United Kingdom, the currency was used before the adoption of the decimal system on 15 February 1971, also know as Decimal Day, and the currency became effective £1/20 shilling.
However, the Somaliland Shilling, which on 31 January 1995 ceased to be a recognized currency, yet remains used in many border villages. The coin is divided into 100 cents, but the cents have never been used, probably due to the low value.
As Somaliland is not an internationally recognized country, the SLSH currency has no official exchange rate.
Moreover, the territories of Ayn, Sanaag, and Sool do not recognize this currency, which are located within Somaliland - disputed regions within disputed regions.
As soon as the Somali National Movement (SNM) liberated the northern Somali Republic region, Somaliland announced that it had regained its independence from the rest of the Somali republic.
Somaliland managed to create it own currency SLSH since 1994. Although, when 50% of the currency came into circulation, the most influential civil war broke out in Hargeisa, Somaliland's capital.
The state that had very low funding due to lack of tax collection mechanism, put into circulation the remaining 50% of printed money that was intended to finance the war.
As there was then no larger reserve because the money also had to be converted to the dollar, and without the collection of taxes or foreign aid, the value of Somaliland currency had an absurd fall.
For Muhumed et al. (2013, p. 4), point out the “lack of recognition brought to Somaliland currency excluding international transactions that caused less demand of Somaliland currency.
The Somaliland Shilling is not included in the list of recognized currencies by IMF (International Monetary Fund)”. As such, the term 'unrecognized currency' has been used when referring to the Somaliland Shilling, in addition to a few others across the world.
The authors add that SLSH's depreciation was due to four main factors, namely: less output; less export; lack of recognition; and the Somaliland currency being absent from international transactions.
“Furthermore, there are no more foreign exporters in Somaliland, but some livestock exports who buy livestock in dollar that deteriorates Somaliland Shilling according to dollar” (Muhumed et al, 2013, p. 4-5).
Studies show that after independence, the newly formed government lacked the ability to collect tax, since it had no sources of revenue to cover its expenditure on the new administration, forces, security, and equipment.
Another curiosity about SLSH that Muhumed team researches highlighted is that “for the smaller denominations of Somaliland currency, conducting one of the simplest transaction e.g. bus fares takes more than five minutes for the fee to be counted and more complex transactions such as purchase of a car may take more than a day” (2013, p. 6-7).
This is how the Somaliland Shilling became a currency of micro-payments only.
For journalist Matthew Vickery, in 2017, the breakaway self-declared republic’s own currency was trades at around 1 USD to 9,000 shillings.
So, we can imagine that cash transaction in Somaliland is not an easy task as it takes time to count the notes and space to carry so much money. A scene that seems to be common in capital Hargeisa is the wheelbarrows to carry faded bricks of shilling banknotes held together by rubber bands.
To make simple payments, especially for tourists or others who are not so familiar with the cash, it is easier to hand one of these bricks to the store clerk and let him pick up how much he will need to complete the payment.
Well, the devaluation of the Somaliland Shilling is so great that it will create different forms of payment ranging from the delivery of cash from the bricks to the seller until payment via mobile money transfer and thus eliminates the long time in the money count.
With the universal expansion of technology, mobile phone use has also been adopted in Somaliland to streamline business mainly in the field of exports.
The portable phone for the currency exchange has improved the lives of traders, especially in shopping centres that mainly sell more expensive products who use mobile payment for larger transactions.
Vickery (2013) also highlights that, with no internationally recognized banks, neither formal banking system and ATMs somewhat an alien concept, two private companies - Zaad which was launched in 2009, and the newer e-Dahab - have filled the void creating a mobile banking economy where money is deposited through the companies and stored on phones, permit items to be bought and sold with personalized numbers.
The use of cash is becoming increasingly marginalized as city traders to street vendors sitting in old, worn-out boxes on dusty dirt roads in the rural east of the country prefer to make mobile transactions that occur by typing in some numbers followed by unique vendor code.
Payment does not require internet access so even the most basic of mobile phones can be used, with users moving money from their mobile banking account to another by dialling numbers and codes in a similar way to topping up a mobile phone.
Research carried out throughout 2016 found that 88% of Somalis over the age of 16 owned at least 1 SIM card, with 81% of Somalilanders living in urban areas, and 62% of those living in rural areas using mobile money services (Vickery, 2013).
But not everyone is happy with this rapid movement because there are rumours of corruption and lack of regulation of the services provided by the two companies. This form of payment for many traders is also causing inflation and creating a mini-illegal economy of its own.
Therefore, it is also possible to find mainly older people who refuse to use this form of payment and prefer to stick with the old way of exchanging paper money.
According to Keating (2018), it is difficult to obtain selected statistics, but in 2012, the World Bank estimated its per capita GDP at only $348 and last 2 years was annual GDP estimated at little more than $646 per capita, or what would make it the world's fourth poorest country.
According to the article of Mills, Hartley, Nwokolo (2019), the Somaliland Chamber of Commerce, Industry and Agriculture estimated that livestock made up 60-65% of the national economy with a population of 10 million goats, five million sheep, five million camels, and 2.5 million cattle.
These numbers may be out of date, however, and it is difficult to obtain more contemporary figures. The major markets for livestock are Saudi Arabia, the UAE, Yemen and Oman. With few opportunities at home, approximately 44% of unemployed youth have stated their intention to migrate.
The unemployment rate among those under 30, who comprise 70% of the population, is 75%. (Mills, Hartley, Nwokolo, 2019).
Also, many people are also dependent on $500m per year in remittances from the roughly million-strong Somaliland diaspora living for the most part in Britain, the US, Scandinavia and elsewhere in Africa.
According to an interview with Barkhad Ismaciil, Director of Planning in the Ministry of Trade, Industry and Tourism, on 27 August 2019, given to Mills et al (2019), "As a result of the small manufacturing sector, the importing of goods for sale occurs on a large scale relative to the size of the economy, leading to a trade deficit.
The latest 2019 statistics suggest there is $202-million worth of exports against $1,205-million in imports". These are economic statistic that allow us to better understand the economic instability that the country is experiencing.
No foreign government recognizes Somaliland’s sovereignty, even though it fulfils many of the requirements for statehood, like the hosting of regular free and fair elections, the capacity to defend itself, and the issuing of its own passports and currency.
However, the research consulted indicates like Muhumed (2003), and other researchers that the recognition of State Independence is the main instability problem of this country, especially economic.
The Central Bank of Somaliland has so far been unable to register a SWIFT code, which would enable direct and secure international funds transfers.
Future for the Unrecognized Currency?
The SLSH circulates between two extremes. The first case, there is the old-fashioned way to change money at the ice cream shop on the street and get out carrying so many bricks of cash that you need the help of a wheelbarrow.
The second, when you buy an expensive necklace and be able to do large transactions of money to pay with your mobile phone without seeing the money.
These are two distinct scenarios that begin in a more primitive mode of capitalism to the most advanced when trading for a kind of virtual currency.
There are two distinct scenarios that are part of the same world, about the currency circulation in Somaliland.
Thus, Somaliland has an interesting history with its currency, limited but also creative and even more rich and curious by allowing understand the economic transactions in a country that seeks recognition and financial autonomy.
Keating, J., When is a nation not a nation? Somaliland’s dream of Independence. (2018, July 20). The Guardian News. Retrieved from: https://www.theguardian.com/news/2018/jul/20/when-is-a-nation-not-a-nation-somalilands-dream-of-independence
Mills, G., Hartley, R., Nwokolo, M. N., Somaliland: New ways of doing things in a rough neighbourhood. (2019, September 12). Daily Maverik. Retrieved from: https://www.dailymaverick.co.za/article/2019-09-12-somaliland-new-ways-of-doing-things-in-a-rough-neighbourhood/
Muhumed, M., Hussein, N. A., Ibrahim, M. A. Mohamoud, I. A., Adam, M. A., Kilas, M., H., (2013). Attributes of Somaliland shillings deterioration and the disappearance of smaller denominations. A research carried out by faculty of economics graduates University of Hargeisa. P. 1-8.
Vickery, M. The surprising place where cash is going extinct. (2017, September 13). BBC Future. Retrieved from: https://www.bbc.com/future/article/20170912-the-surprising-place-where-cash-is-going-extinct