Bringing back the Somali shilling (2017)

What a fascinating article, reality is sometimes remarkably and amusingly counterintuitive. I would've never guessed a culture would accept counterfeit currency en masse.

If a 1000 shilling note is only worth 4 US cents, does buying stuff require a small mountain of bills?

Here are some costs for food in Somalia (USD):

  Loaf of Fresh White Bread (1 lb) 0.86$
  Rice (white), (1 lb) $0.54
  Eggs (regular) (12) $2.37
  Local Cheese (1 lb) $2.19

So, not exactly dirt cheap, paying in 4 cent increments.. imagine if you carried around only nickels, a backpack may be needed just to carry the cash. What if you want to buy a car, motorcycle, or bicycle? Where would you even store all that cash, haha.

One thing I don't fully understand, TFA says a 1000 shilling note is worth $0.04USD (meaning, $1USD would equal 25000 shillings), but when I searched for the exchange rate online, everywhere says $1USD converts to about 575 SOS (Somalian Shillings). Can anyone here enlighten me about what's going on with the shillings?

Edit: Thank you @roywiggins for explaining! https://news.ycombinator.com/item?id=39944411

Dollarized mobile money payments via Hormuud Telecom's EVCplus / Sahal / Zaad networks are dominant, and mobile coverage is pretty extensive. They have an API and a full Islamic commercial banking infrastructure.

I have more personal experience in the Republic of Somaliland, which is a de-facto independent state in the north. In Somaliland, the government set a regulation that requires all mobile money transactions < $100 USD to be done in Somaliland Shillings. Somaliland Shillings are often used as change in any small USD cash transactions. The Somaliland Shilling is pretty stable. It was trading at ~9600 / USD last spring, and I don't think it has moved much since then.

Regularly transacting in physical USD is a huge pain because people will only accept virtually perfect bills with the latest design. It makes sense to an extent because it's costly to replace damaged bills.

Dollars are and will continue to be a huge part of Somali trade - the Somali diaspora and business community regularly trade in Ethiopia, Kenya, and beyond. I don't think you'll find anybody using Somali shillings in Somaliland either. There's also limited value / opportunity for any constructive monetary policy because there's very little conventional debt or interest. I agree with the author that there might be some value in introducing local coinage for small transactions, but anything more is likely to be counterproductive.

- shameless plug to anyone at YC - take a look at my S24 application and you can see a website that uses the Hormuud mobile money API. Email and I'll give you some more test info for this payment flow (it's not in the demo)

- If you're really interested in mobile money APIs or payments in Somalia, I'll share more if you email my handle @gmail.

So, printing a counterfeit banknote is basically "proof of work" in this case!

I agree that having counterfeit bills be accepted on par with "genuine" ones is counterintuitive. I disagree that it's not rational. As I implied with the quotemarks, once there is no central bank or central government, a "genuine" bill is merely one that was printed earlier than "counterfeit" ones. As discussed in comments, in such a scenario, bills (whether "genuine" or not) become commodity currency like gold coins.

I seriously doubt that Somalis kept using shillings out of confidence that they would be worth something again; such hopes would have disappeared years ago. The author alludes to the real reason but doesn't explore it: The currency is still convenient for use where actual dollars, or electronic versions, are not available. Shades of Fallout's bottle caps.

I'm not surprised that the IMF would encourage the return to a sovereign currency. IMF has historically been non-encouraging of dollarization, despite its consistent track record of a) working when instituted by the government (Panama, Ecuador, El Salvador), and b) being preferred by the people when they lack confidence in the official currency (Argentina, Myanmar, Somalia itself, and pretty much the entire rest of the non-developed world).

The blog from which this article hails -- turns out to be an interesting blog about all things Money:

"Moneyness "money is best described as an adjective not a noun" - the blog of JP Koning":

https://jpkoning.blogspot.com/

(Disclaimer: Note that I do not necessarily agree with some/any/all of the political positions and/or ideologies espoused by this blog. That being said, it seems to be an interesting blog with the central topic being all things Money related...)

I found interesting, from https://news.ycombinator.com/item?id=39606093 about ancient coinage

> "There was a chronic shortage of small change in ancient economies, so even poor quality fakes were accepted in markets for lack of anything better. Authorities tended to ignore such forgeries"

We're seeing the same thing again in this article.

The Iraqi Swiss Dinar is another example of a currency surviving without a central bank -- in that case, even with the central bank directly opposed to the continued circulation of the currency.

The article appears to be from 2017; does anyone have experience of what has happened since? Were the new shillings actually issued? Are they used?

The Somali Schilling has fascinated me for years - because it's living proof about how mediums of exchange work - all people have to do is believe that something is worth something.

The something is unimportant, could be slips of paper, rocks, bits of shiny metal, trees, really anything - there object need have no intrinsic worth - it doesnt even need to be portable either, just that people agree X object changed hands and Y person owns it now.

It's sort of like trading with chunks of gold, the value of the chunk of gold is what you can purchase, but in this case it's specially printed paper which can be traded for a value of a little more than it costs to make specially printed paper

Why would you start with the de facto denomination instead of with a higher one? Tired of carrying bricks of 1000 shilling notes? Here’s a 20k shilling note so you can carry ten instead of a brick.

The obvious question is what is the difference between Somali shillings and crypto currencies? Except the granularity of the denominations?

If people can trade using worthless paper money, how is that substantively different from crypto currencies. Or dollars?

Is the real value of any currency simply the amount of credibility it has?

What exactly is money anyway.

When the taxing authority disappears notes and coins drop to their commodity value which may then appreciate like classic cars if they become rare - as the old Reichmarks have done.

I'm a bit skeptical that this article tells the complete story. Who is printing these counterfeits? What are their incentives? Why not just keep printing more and inflate the currency into oblivion?

This needs a [2017] in the title.