Brief - The Somali Shilling Crisis

Overview

There have been growing tensions among the public, with the latest concern this week coming from reports that traders in the Banadir region and parts of Hirshabelle have refused to accept the Somali shilling. This has directly affected people relying on cash transactions, with many experiencing reduced purchasing power and what is locally being described as “dead cash” in circulation.

The Central Bank of Somalia has struggled to effectively regulate the Somali shilling, often citing counterfeit currency as a major challenge. As a result, it has been unable to fully stabilize or take firm control of the currency system. In moments like this, the lack of decisive action from key financial institutions becomes more visible and deepens uncertainty in the market.

The matter might have been partially contained following intervention from the Banadir governor, Muungaab, who declared that it is unlawful to refuse the Somali shilling, reaffirming its status as the official legal tender. This step appears to have reduced the crisis and eased tensions slightly in parts of the capital.

This situation is not new. The Somali shilling has been facing these problems for years, yet there has never been consistent action strong enough to fully deal with the issue. Every new crisis weakens public confidence even more and leaves ordinary people questioning whether the institutions responsible for the currency are truly in control of the situation.

Key Drivers

• Limited Government Usage: The government itself has been one of the key drivers behind this crisis through its gradual move away from using the Somali shilling in major transactions. Taxes, port payments, and many state-related financial activities are largely conducted in dollars rather than the national currency. With state institutions relying on foreign currency over their own legal tender, it weakened public confidence and sent a negative signal about the strength and credibility of the Somali shilling.

• Counterfeit notes in circulation: Since the Somali government collapsed in 1991, there has been a plague of counterfeit notes, with the central bank ceasing official printing of notes; over 90% of the money in circulation is counterfeit. With the supply of genuine pre-1991 notes being limited, the counterfeit notes are widely accepted as a form of payment, which also does not help the currency

• Dollarization and Mobile Money Dependence: The widespread use of U.S. dollars and mobile payment systems has continued to push the Somali shilling further out of major transactions, especially in business and trade. Many traders now prefer dealing in dollars because the Somali shilling has become difficult to use in large amounts due to its low value and physical bulk. Carrying large stacks of cash for relatively small purchases has made the dollar look like the easier and more reliable option for many businesses and consumers.

What does this mean?

At the institutional level, the crisis has exposed the government’s limited ability and that of financial authorities to fully regulate and stabilize the currency system. Repeated disruptions like this continue to weaken confidence in the state’s ability to manage one of the most basic responsibilities of governance: protecting the national economy and ensuring stability for its people. When a country’s own currency can be openly rejected in markets, it raises wider concerns not only about monetary policy but also about institutional authority and public trust.

The people carrying the heaviest burden in this crisis are ordinary citizens who depend on cash for their daily survival. Many families, workers, small traders, and transport operators are left holding money that could lose value or acceptance at any moment, creating fear and uncertainty around something that should represent national stability.

What Should Be Done

The government needs to be fully involved and stand at the front line of this matter instead of reacting only when the situation becomes public. A national currency cannot survive without the backing, confidence, and active participation of state institutions themselves. If the government expects the people to trust and use the Somali shilling, then it must also lead by example through taxes, salaries, and public transactions.

This also presents an opportunity. After decades of counterfeit circulation, weak regulation, and declining confidence, this may be the right moment for the government to revisit and complete the Somali shilling printing process that had previously been planned in Sudan before the conflict there disrupted. Alongside that, serious consideration should be given to rolling out a new legal and better-protected Somali currency backed by stronger oversight and clearer monetary policy.

Conclusion

The Somali shilling has long survived decades of conflict and the collapse of central banking structures. While the current situation presents serious challenges, it does not necessarily signal the end of the currency itself
However, the crisis keeps on occurring, and it increasingly shows the need for stronger monetary reform and a more credible national currency strategy moving forward. The Somali shilling is a national symbol, and there is a strong responsibility for the government to regulate the currency. A new currency is needed today more than ever.