Mogadishu (Caasimada Online) – Somalia is moving forward with a historic initiative to reintroduce the Somali shilling as its official currency — a bold move aimed at regaining monetary sovereignty after decades of reliance on the US dollar and widespread use of counterfeit notes.

The ambitious reform, described by Somali officials as a “national priority,” will involve a full-scale currency exchange and the introduction of a tightly controlled “currency board arrangement” to stabilize the new shilling and rebuild public confidence.

Backed by strong technical and financial support from the International Monetary Fund (IMF), the plan recently received a $10 million boost to help drive Somalia’s broader economic reforms.

At the heart of the government’s state-building vision, the currency overhaul is seen as essential for national unity. Leaders believe that reviving a trustworthy national currency will make day-to-day transactions easier and more inclusive, especially for vulnerable Somalis who lack access to dollars or mobile money platforms.

A currency board at the core

Central to the reform is the proposed currency board arrangement (CBA) — a system that would peg the new Somali shilling to a stable foreign currency, likely the US dollar, at a fixed exchange rate. Under this model, each shilling in circulation must be fully backed by foreign currency reserves.

This approach is designed to provide financial stability and prevent inflation by tightly limiting the central bank’s ability to print money without the necessary foreign currency backing.

“We believe that a currency board will provide a stable and predictable policy environment to ensure confidence in the national currency across Somalia, while maintaining a dual currency regime with the U.S. dollar,” officials said in a policy memorandum.

Since the collapse of the Somali state in 1991, the country’s formal financial system has largely disintegrated. The Central Bank ceased operations, the official Somali shilling lost its value, and the market became flooded with outdated and often counterfeit currency — some of which still circulates in limited use today.

In the absence of a functioning currency, Somalia evolved into a largely dollarized economy. The US dollar became the de facto medium of exchange for most transactions, later supplemented by the widespread adoption of mobile money platforms. But the lack of a national currency has left the government unable to manage monetary policy and excluded many poorer Somalis from the formal economy.

The roadmap ahead

Somalia’s plan to reintroduce the shilling is based on a phased and legally grounded roadmap. According to IMF documents, key milestones include:

• Amending the Central Bank Law: The government is finalizing revisions to the CBS Law to establish the currency board framework legally. The bill is expected to reach Parliament by the end of December 2025.
• Creating Supporting Regulations: Once passed, the Central Bank Board will issue critical regulations — including foreign exchange counterparty rules by May 2026 and a mandate to publish weekly currency board balance sheets by July 2026.
• Implementation: These reforms will take effect following the physical rollout of the new currency and the formal establishment of the currency board.

Despite the structured approach, challenges remain. Officials have intensified efforts to secure additional funding for the currency exchange. The initiative’s success hinges heavily on achieving a political consensus between the Federal Government of Somalia (FGS) and its Federal Member States (FMS) — a challenging task in Somalia’s fragmented political landscape.

The IMF praised the government’s commitment to advancing the plan, calling for continued progress on both the currency exchange and the CBA framework. International backing, observers say, will be crucial to navigating the financial and political hurdles associated with such a far-reaching reform.