The currency used in Somalia is the Somali Shilling.
The Central Bank Act – Decree Law No. 16 of 19/10/1968 mandates the Central Bank is the only authority mandated to issue Somali currency bank notes and coins as legal tender.
BRIEF HISTORY OF THE SOMALI CURRENCY
There is no specific period that can be traced the starting era of the use of money metallic coins in Somalia, but from the history we acknowledged that the trade relations between the neighboring countries in the exchange of goods were based with the currencies used by those inhabitants of the region namely in the Arabian Peninsula and in India.
Before going forward deeply into details, the history of the Somali currency or the monetary system it is important even briefly to mention the developed stage of civilization achieved by the different societies of the different regions of Somalia.
Among the oldest cities flourished with trade can be quoted: Zeila,Bulo Har, Berbera, Warsheikh, Mogadishu, Brava and Kisimayo.
The Moroccan explorer, Ibn Batuta, who visited Somalia’s coasts, and in his memorable book which he wrote during his long journey along the Somali coasts, revealed that he has landed Mogadishu describing widely that the city was big, booming and with several small industries and handcrafts artisans.
The principal form of currency in Somalia has been base metallic coins, usually silver, and by the first half of the 19th century the main unit of currency was the Maria Theresa Thaler which was known in Somalia “Sharuq”. It was a coin containing four parts silver and one part copper, and has been issued by the Austrian Empire, in honor of the Empress Maria Theresa, who ruled Austria, Hungary and Bohemia from 1740 to 1780. It had gained acceptance in the Arabia Peninsula and in the Horn of Africa, Somalia, Ethiopia and Eritrea, as its high silver content satisfied the people’s desire for base coins.
At the same time there were also circulating currencies used as mean of exchange in Zanzibar, Mombasa, Muscat, India and Iran , the Indian Rupee made by silver and the Pesas made by copper.
India was one of the earliest issuers of coins (circa 6th century BC). The first Rupee is believed to have been introduced by Sher Shah Suri (1486-1545), based on a ratio of 40 copper pieces (Paisa) per Rupee. Historically, the Rupee, derived from the Sanskrit word Raupya, which means silver, was a silver coin.
In 1898, the Rupee was tied to the gold standard through the British pound by pegging the Rupee at a value of one shilling and four pence ( i.e., 15 Rupees=1 pound).
Southern regions of Somalia
The Italian “Protectorate of Somalia” introduced divisional coins of one cent each made of bronze. This new coins had exchange rate with one the Maria Theresa Thaler to 150 cents. In the same year the Italian Administration injected into circulation coins made by nickel with an exchange rate of 25 cents each.
The Administration’s currency policy had not procured satisfactory results and in 1909 it was introduced new currency in different denomination of coins “Italian Pesa” divided in one, two and four Pesas, with an exchange rate of 150 Pesas per one Maria Theresa Thaler.
The Administration, pursuing its currency policy in Somalia introduced new currency known as “Italian Rupee” aiming to get acceptance from the public as the mean of exchange, in which the name of this currency is very close to the previous one, the Indian Rupee. This new coins were made by silver with a specific exchange rate with the Sterling Pound of 0,066667 and with the Italian Lira’ conversion rate of one Rupee to 1, 68 Lira.
The new Italian Rupee put to an end the Indian Rupee and the Maria Theresa Thaler from the circulation, but also this new currency had not succeeded due to the increase of the silver price in the international markets and has been introduced Italian Rupee notes.
This continued up to the time when Italy set up an Italian East Africa Administration, which consisted of Italian Somaliland Protectorate, Ethiopia and Eritrea. So from 1938 Italian issued a new currency for Italian East Africa that consisted of notes denominated in 50, 100, 500 and 1,000 Lire which were similar to those circulating in Italy with minor modification.
During the second world war, the British army defeated the Italians in East Africa taking full control of Somalia. The new British Army Administration enacted a circular authorizing that can simultaneously circulate in Somalia all currencies linked to the Sterling Pound, such as: East African Shilling, Indian Rupee, Egyptian Pound and Maria Theresa Thaler-notes. The British Army Command with order No. 1 of 24th March issued by the Administration were fixed the exchange rates between the different currencies in circulation in Somalia. The system functioned till 1950 when the Southern Somalia’s Administration went under the United Nations Trusteeship- A.F.I.S.-
Introduction of new Somali currency: banknotes and coins “the Somalo”
This new currency circulated in Somalia for 13 years (1950-1963).
The United Nation’s Trusteeship Administration “A.F.I.S.” issued a Decree No. 14 on the 16th May, 1950 regarding the creation of a new Somali currency for Somalia fixing its value of one Somalo to 0,124414 gram of fine gold, as same as the East African Shilling. This new currency policy achieved the economic goal in stabilizing the prices in the domestic market. This new currency order had great economic and political importance: economic, because is independent and not linked to the other currencies and was also the first currency bearing the name of the country. Politically important because it was introduced before the country got its independence. Solid precaution was given the Somalo in order to circulate even when the country becomes free and the stock printed and minted was covered by gold, silver and hard currency ( International currencies more trusted).
The issuance of the Somalo notes was supervised by a Currency Board, which was established in April 1950 and based in Rome. The Currency Board was established as a company limited by shares. Out of 1,000 shares issued 995 were held by the Government and 5 by foreign financing company . The ‘Cassa per la circolazione monetaria della Somalia” was responsible for controlling the backing for, and issue of the notes and coins issued in Somalia. This continued for the whole period of Trusteeship from 1950 up to independence of Somalia in July 1960.
The currency introduced by A.F.I.S. Administration to circulate in the Southern Somalia was as under:
One Shilling (1) composed of 100 cents
Half Shilling (0, 50) composed of 50 cents
Kumi (0, 10) composed of 10 cents
Tano (0, 05) composed of 5 cents
Dhururuq (0, 01) composed of 1 cent
Currency of one Shilling and half Shilling were made by silver (250/1000) and coins under those values by bronze and aluminum.
Banknotes printed were of 100 Somalo, 20 Somalo, 10 Somalo and 5 Somalo.
Northern regions of Somalia
In the Northern regions of Somalia under the British Administration was used as currency the Indian Rupee. No changes was introduced by the British Government regarding this currency, although, at the end of the First world war, the price of silver rose, the value of one Rupee which was one Shilling and four pences rose to 2 Shillings. The British Administration in order to manage the situation, started to revise the monetary system in most of East African countries. In 1919 was established the ‘East African Currency Board” with the function to issue, control and manage of the currency in the Eastern African countries (East African Shilling). This currency was linked to the Sterling Pound.
The East African Currency Board upon its formation started its activity in Kenya, Uganda, Tanganyika and 1936 joined also Zanzibar Island. Although in the Northern regions of Somalia, known as British Somaliland Protectorate joined officially the East African Currency Board 22 years after its creation in 1941, in the same year joined the Board Yemen ( Aden), Ethiopia and the Southern Regions of Somalia governed by the British .
In the Northern regions of Somalia both East African Shilling and Indian Rupee were circulating simultaneously as legal tender. On 1st October, 1951 the British Administration stopped the Indian Rupee to circulate freely in consequence of the independence of India on 15TH August, 1947. From 1951 the East African Shilling was the only currency circulating in Northern regions of Somalia until the date of their independence.
Conversion of the Somalo with the East African Shilling.
An agreement was reached between the Somali and the British Governments concerning the extension of East African currency circulation for one more additional year in the Ex- British Somaliland Protectorate in order to pave way the reunification of the currencies after the union of the Southern and Northern region on 1st July,1960.
Decree No 2 of 6th March, 1961 and converted into Law No.3 of 23rd May, 1961, in Northern regions of Somalia on the 22nd April, 1961 started the replacement of East African currency with the Somalo and lasted till the 25th June, 1961.
To give chance to those who were still keeping East African Shillings in hand, the period was extended to 31st July, 1961.
Currency introduced after the independence
In 1962, following independence in 1960, the Somalo and the East African Shilling which were equal in value, were replaced at par by the Somali Shilling. With Decree No.2 of the 6th March, 1961 transformed into Law No. 13 on 23rd March, 1961 the currency Somalo was renamed into ‘Somali Shilling’.The first new series of banknotes were issued of denominations of 100 Shilling, 20 Shilling, 10 hilling and 5 Shilling in 1962.
Initially, coins of the East African Shilling and Somalo circulated. In 1967, new coins were issued in the name of The Republic of Somalia in denominations of 1 Somali Shilling, 50 cents, 10 cents and 5 cents.
It followed a second and third batches of currency issued in 1966 and 1968 respectively.
The fourth batch was different in substance as the previous one, and it was released in 1971/72.
In 1974, a new series ( fifth batch) of banknotes was introduced. This time the shape and the language of the banknotes changed substantially, but the value remained the same. The language used was Somali and Arabic.
The sixth batch or the first batch of currency printed by the Central Bank of Somalia was in 1978, by Decree No. MJDS of 6th December 1977, in the denomination of 5 and 100 shillings, these was followed by issuance of 10, 20 and 100 notes in 1980. The content of the value of the currency remained the same except the name of the issuing authority that changed from the Somali National Bank to Central Bank of Somalia.
In late 1982 preparation were put in place for the introduction of a new series of banknotes. The pertinent Decree was enacted in December 1982 and in 1983 the notes were released into circulation. The notes of this series are similar to the notes of the preceding series, but they are reduced in size ( seventh batch).
In addition to the four traditional denominations released in Somalia over the previous thirty years, this issue sees the introduction of a new denomination of 50 Shillings, in 1983.
As the political and economic situation started deteriorating and inflation continued to rise, it became necessary to issue higher denomination of the shilling notes. With the new release in 1989 (eighth batch) a new denomination was introduced that is of 500 shilling note.
As the situation spiraled out of control, a 1000 Shilling note was introduced ( ninth batch).
By 1990, the economic crises called for change in currency. The Government acted to reform the currency by creating the New Somali Shilling, with one New Shilling being equal to one hundred old Somali Shilling.
Notes in the denominations of 20 and 50 were ordered by the Central Bank.
Following the political crisis, the olderly banking system collapsed, including the Central Bank of Somalia’s right of being the sole and exclusive issuer of the Somali banknotes and coins, and as of today, the formal commercial banking activity in the context of the Monetary Policy does not exist and there reserve money is wholly composed of bank notes issued by various un official issuers.
Since 1996, War lords and business people have been printing Somali Shillings Bank notes.
The Central Bank of Somalia is resuming its role as the sole and exclusive authority to issue banknotes and coins as a first step to take control of monetary policy.