The Horn of Africa state has not issued official currency notes since 1991 and is banking on a $41 million donor-funded currency reform plan to phase out the counterfeit notes that account for more than 90 percent of the money in circulation in the country.
The lack of a genuine currency and payments system has made it difficult for Somalis to do business.
The country has been facing civil strife since the collapse of its central government in January 1991 but is now beginning to reform its governance under the federal government.
Mogadishu told an IMF review team in a meeting last month in Nairobi that its central bank had endorsed the framework for the issuance of new currency and identified committee members who will support the process.
“As soon as the administrative framework for the project fund is set up and the project funding is fully covered, we expect the IMF to assist us with a currency expert based in Nairobi to provide direct support to the Central Bank of Somalia and the currency reform project manager,” the government told the IMF.
“We have stepped up efforts to reach out to donors to raise the needed funds ($41 million) for this project and also reached out the World Bank for assistance on the project fund’s administration.”
The first phase of the reform plan will see the Somalia government print 752.5 million new notes — starting with small denominations — which it will then exchange for the counterfeit Somali shilling notes currently in circulation.
The new currency will also allow the Central Bank of Somalia to build up a reserve buffer in its own currency as it looks to set up a central payment system and strengthen regulation of the country’s banking sector.
In the second phase of the currency reforms, Somalia will print larger denomination notes and development of independent monetary policy instruments and reserve management guidelines.