After more than 35 years of dollars in daily life, Somalia is trying to bring back the shilling. The parliamentary debate shows that even the choice of exchange rate is politically contested, and that the outcome will affect households, banks and trade very differently.
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The Somali shilling was introduced in 1921, and its exchange rate was later tied to British and American currencies. After the central state collapsed in 1991, the central bank lost control of the money supply. Somaliland stopped using the Somali shilling in 1995 and has since operated its own currency. Mobile money grew up as a parallel system, and in 2021 Hormuud Telecom received the country's first mobile money licence. The currency reform is therefore not a new initiative, but an attempt to repair a system that has developed over more than 30 years.
- The official rate was around 572 shillings per dollar in August 2026, while the informal market has at times reached 31,000.
Dollarisation is an equilibrium, not just a choice. People use dollars because everyone else does. The shilling has kept its role as a means of payment for small purchases, but has lost its functions as a store of value and a unit of account. When large amounts are priced in dollars and savings are held in dollars, it becomes rational for each individual to continue doing so, even though the shilling is formally legal tender.
Remittances make the reform both possible and difficult. Diaspora remittances are the country's most important source of foreign currency. At the same time, estimates of their size are highly uncertain. Sources range from around 2 billion dollars a year to far higher figures, and the methodology is weak because much of the flow is informal. A currency board depends on reserves. The paradox is that the same dollar flows that make dollarisation attractive must also provide the basis for a new shilling.
Mobile money is both a tool and a position of power. The EVC Plus platform, run by Hormuud Telecom, is used by many people for daily payments and transfers. The company had around 40 percent of the market in 2020 and has roughly three million EVC Plus users today. The platform is largely dollar-based, so the digital infrastructure reinforces dollar use. If the new shilling is not integrated here, it will become a cash currency with no digital role. Integration, however, gives a single operator substantial influence over the currency in daily life.
De-risking strengthens hawala. International banks limit their relationships with Somali banks because they see them as high-risk. This makes it difficult to make dollar payments and to finance imports through the banking system. As a result, hawala and other informal channels play a larger role. The central bank argues that this increases risk rather than reducing it, because transactions move outside supervision. This is a vicious circle: isolation makes informal channels necessary, and the informal channels make the isolation seem justified to foreign banks.
A currency board requires discipline that is uncommon in Somalia. The reform requires the exchange rate to be set and locked, reserves to be visible, and the state to be unable to finance deficits by printing money. Tax revenue is around 3 percent of GDP, and the country depends on aid. That leaves little fiscal room. The IMF has therefore urged extreme caution, particularly after aid cuts from 2025.
The preconditions are clear. A successful reform requires four things at once: an exchange rate the market can accept, reserves that can be verified, integration with mobile money and the banking system, and political agreement that extends to the regions, including Somaliland.
"Reintegrating Somalia's banking system into correspondent banking networks would restore transparency," said Central Bank Governor Abdirahman Abdullahi.
What does this mean for the Horn of Africa? Somalia is a member of the East African Community, and trade with Ethiopia, Kenya and Djibouti is significant. For these countries, an unstable shilling means that goods crossing the border may become more expensive or less predictable. Hawala networks are also regional, and Somali families in Kenya and Ethiopia are among the largest senders of money home. If the reform makes money flows more formal, it could change costs for both senders and recipients across the region. If it fails, the informal regional economy will keep growing, along with the risks of money laundering and foreign influence.
Somaliland is a special dimension. Its own currency has been in use since 1995, and a unified Somali shilling may be seen both as a symbol of unity and as a step backwards by a region that has built its own institutions. Dialogue between Mogadishu and Hargeisa will be decisive for whether the reform gains legitimacy across the whole country.
Somalia has not lost its currency, but it has lost its function. Dollarisation is a stable equilibrium that no single actor can change alone. The currency reform is an attempt to change the expectations of households, importers, hawala operators, mobile operators, banks and donors at the same time.
There are three possible outcomes. If the exchange rate is realistic, reserves are published and the shilling is integrated into mobile money, it may gradually gain trust, first in small purchases and wages. If the rate is set politically too high, people will switch to dollars, reserves will be depleted, and the reform will lose credibility. If the reform is delayed for years, dollarisation and banking isolation will persist. Which outcome materialises will depend on whether trust can be built through rules that can actually be verified, rather than through political declarations alone.
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