Historical Sketch

Along the Somali coast local states have been recorded since antiquity, Islam arrived already in the 6th century. In the late 19th century, European imperialism subdued the local states, and in 1889, the region was partitioned between Great Britain and Italy. During World War II, Italian Somalia was occupied by Great Britain, the colonial administration was restored afterwards in the form of a UN trusteeship. In 1960, the two colonies were merged and attained independence as Republic of Somalia. After a military coup in 1991, a civil war broke out during which the state institutions disappeared with local warlord having control over parts of the territory. The former British Somalia seceded as Republic of Somaliland, a move which was not recognized internationally. The de facto state has nevertheless developed structures of its own. In Somalia, the federal government of 2012 has started to rebuild structures and institutions, however, is still far away from control over the territory. A re-unification of Somalia and Somaliland is not in sight.

Monetary History Overview

When European colonization began in the late 19th century, the Maria Theresa Thaler had been established as unit of account. It had flown into the entire Arab and North African region via long distance trade. Indian coinage also entered via foreign trade and circulated alongside with the Thalers. The Italian administration had first planned to introduce the Lira accounting and to import Italian coinage. But in 1909, this was abandoned, and a currency law was passed to create the Somalian Rupee on par with the Indian Rupee. The subsidiary coinage "Besa" was modelled after the Indian coins, but 100 Bese went into the Somali Rupee instead of 64. The Thalers were demonetized in 1916. No colonial issuing institute was established, the Bank of Italy issued paper money for Somalia instead. In 1925, a second attempt was made to switch to Italian accounting and the use of the Italian currency. A royal decree abolished the colonial currency and switched to the Italian Lira instead. Italian banknotes and coins were introduced, initially complemented with two local silver coins were produced, but they were withdrawn already one year later. In 1938, the Bank of Italy issued a small batch of distinct notes for Italian East Africa (where Somalia was part of since 1936) but already three years later the colonies were occupied by Great Britain. The military administration immediately declared the East African Shilling sole legal tender, which was already current in British Somalia. The Italian money, however, remained tolerated for more than a year. Italian rule over Somalia was restored in 1950 under a UN trusteeship mandated. In May of the year currency institute was set up under guidance of the Bank of Italy, and the Somalian Somalo was created as national currency. It was pegged to the Pound Sterling and identical in value as the East African Shilling circulating in the British colony. This rendered the currency unification easier when the Italian and British territories merged to form the Somali Republic. On Independence Day, a central bank was established, and a year later, the Somalian Shilling became new national currency. The changeover was carried out in two steps. In June 1961, the Somalo replaced the East African Shilling in the former British colony to create a single currency area. In December 1962, the Shilling was issued everywhere, and the Somalo was demonetized within a year. The Shilling continued the peg to the Pound Sterling and repegged to the US Dollar in 1967 when Somalia did not follow the devaluation of the British currency. The value was kept stable until July 1981, when a 50% devaluation was decreed. Then followed a series of devaluations in the 1980s of more than 90% cumulated. In 1990, a currency reform was initiated to cut two zeros and create a "2nd Somalian (New) Shilling". But at the same time, the civil war had already broken out which led to the overthrow of the government in early 1991. During the fighting in the capital Mogadishu, the central bank was looted and then ceased to operate. The state structures vanished and were taken over by warring regional warlords.

The currency did, however, not disappear together with the state structure. The population continued to accept the 1000 Shilling banknotes (and to a lesser extent 500 Shilling) from the period before 1991. Initially, unissued banknotes from the looted central bank were brought into circulation by several warlord groups. After 1996, when the stocks were exhausted, various groups commissioned banknotes in identical design (and in the name of the defunct central bank) from foreign manufacturers. They were also accepted by the population in payment transactions as long the design was essentially the same as that of the pre-war banknotes. The 1000 Shilling banknotes (the few surviving 500 Shilling banknotes were traded the same regardless of their face value) had become a "synthetic commodity" with a trade value that varied according supply and demand. The continued reprinting led to an oversupply of notes which lowered their trade value to the point that it reached the production cost. At this moment, during 2008, any further reprinting became unattractive, and the value of the banknotes stabilized, although it still fluctuated regionally and over time.

In 2012, a banking law was passed to re-establish the Central Bank of Somalia. In early 2018, it began to gradually resume operations. The revision of the monetary situation is not in sight.

Somalia joined the International Monetary Fund (IMF) on 31.08.1962.

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Monetary History Sources