The Somali Shilling must go

[James Dahl]

I was just reading this article
http://www.mareeg.com/fidsan.php?sid=64 ... acf034dcad

And I had thought things were bad with the Somali Shilling, but people printing it in their own homes? This currency needs to be put out of its misery.

Dahabshiil and the business community of Mogadishu and Bosaso should get together and create a Bank of Somalia, because the government is never going to do it, and establish a new currency, set an exchange rate of 20,000 old Somali shillings to 1 BoS banknote for a week (with priority given to the poor folks), and then notch it up to 50,000 old Somali shillings to 1 BoS banknote for the rest of the month, and then stop exchanging the currency at all.

Dahabshiil can start by only giving out BoS banknotes from remittances, and the traders in Mogadishu and Bosaso give only BoS banknotes on purchases and sales. Float it on the world currency market and investors could directly invest in the Somali economy by just purchasing Somali hard currency.

With good security on the banknotes, and control out of the grasping fingers of the corrupt politicians, Somalia could be the only country in Africa with a stable currency, which would be a gigantic boon to investment and business, and the government wouldn't have a "license to print money", so there would be a severe limit to how much damage they can do to the economy (see Zimbabwe, Puntland).

[siren]

I say forget the whole thing and let's go back to bartering!

[FAH1223]

Of course, just use the US Dollar or something.

[James Dahl]

Of course, just use the US Dollar or something.

Using US Dollars helps the US economy (as buying their currency increases its value and thus the wealth of everyone who has it) but does nothing for Somalia.

The genius of using remittance money to buy BoS banknotes is that, in effect, people are exchanging US dollars for BoS banknotes, which then get printed and the American greenbacks are held as a hard cash reserve by the Bank of Somalia. The Bank of Somalia can then use this hard US currency to buy gold for its reserve, and issue savings bonds.

Somalia could have an absolutely first rate currency.

[Shirib]

Of course, just use the US Dollar or something.

And where are the poor people gonna get US currency.

That is the worst possible advice

[FAH1223]

Of course, just use the US Dollar or something.

And where are the poor people gonna get US currency.

That is the worst possible advice

Somali shilling is toilet paper

James, yeah thats what I meant

[James Dahl]

You know, as a nongovernmental currency it could even be made into THE Somali currency, by issuing the currency in NFD, Somaliland, Djibouti and Ogaden.

[Padishah]

Not a bad idea.

[James Dahl]

Save the economy! Kill the shilling!

[gurey25]

this is an excellent oppurtunity to ditch the entire ineffective financial system.

the survival of the somali shilling is proof that conventional logic does not work here....


what we should encourage is multiple currencies implemented locally.

every cumminty and state should print their own unique local currency.

[gurey25]

a central bank means that you will be implenting a fractional reserve system that is unnecessary, difficult to maintain and basically xaram.

if you are using fiat curreny then it should be interest free and debt free.

[James Dahl]

Central reserve banks are vital to economic stability. The British and Americans learned that one the hard way in the 19th and 20th centuries. When the sh*t hits the fan the only thing that stands between the economy and complete economic meltdown is the central reserve bank.

They don't have to be structured in a way that is usurious and therefore haram, as in this case the primary task of the Reserve Bank of Somalia is being an Economic White Knight and issuing and managing currency. The fact that the US Federal Reserve also sets interest rates doesn't mean the Somali Reserve Bank has to.

You can have a central reserve bank without usury.

[JaMaaL-23]

^ but the reserve banks use Interest as a stabilising factor. they increase the interest rate to get ppl save many and cut back on spending thus curtailing inflation, and they lower the rates to encourage consumer spending when there is poor sentiment.

Since the "BoS" isn't regulating entity, what other machenisms would the BoS use to control inflation?

the answer lies in understanding the forces behind the current cripling inflation.

[Padishah]

I smell someone duped by Keynes.

[James Dahl]

Inflation is caused by three factors:
- Printing currency faster than it is taken out of circulation
- Demand for products outstripping supply and driving the price up
- Speculative lending increasing spending, thus driving up both currency printing and product demand

Now while economic growth is proceeding unhindered, two things (issuing lots of currency and issuing lots of small business loans) both inject lots of money from the economy at large into government spending and business spending, which allows businesses to grow rapidly but on the back of a big bubble that can pop at any moment.

Governments are not usually alarmed by inflation because first off, they cause the inflation as a form of indirect taxation on the economy as a whole, by printing currency they are in effect taking a portion of the value of their nation's currency away from all existing currency, printing out that value, and then re-spending it, vastly increasing the government's fiscal resources. The business loans stimulate economic growth, but add economic instability, which western economists consider acceptable.

A lot of economists will argue that it's more complicated than this, but it isn't really. It is actually quite easy to create a society that averages 0% inflation, ESPECIALLY in the absence of government control of the currency. Inflation can be countered by printing less currency and deflation can be countered by printing more.

Historically, printing currency and thus devaluing it was actually necessary to prevent the bogeyman of the 19th century, which was DEflation. This was a common problem of the gold standard, as while western economies boomed, the currencies could not keep pace as there was only so much gold to go around, and as every note printed had to represent gold or silver stored somewhere there were severe limits on currency printing.

As I see it, Somalia is in a unique position. Remittance allows a steady stream of hard foreign currency that can be held in reserve, while the non-usury culture will avoid the pitfalls of lending and the traditional economy benefits from firm currency stability rather than being punished by it. As well, the egalitarian and community-oriented business community in Somalia are uniquely suited for stewarding the currency, while the government is the worst steward of the currency.

In fact, Somalia is a country where the gold standard would actually be an improvement, as its economy is mostly traditional.