IMF Urges Somalia to Exercise Caution as Government Moves to Reintroduce Somali Shilling

The International Monetary Fund has urged Somalia to proceed with extreme caution as the country advances plans to reintroduce the Somali shilling after decades of widespread dollarisation and the collapse of the formal monetary system.

Somalia’s currency reform is intended to restore confidence in the national currency, replace old and largely counterfeit notes in circulation, and reduce the economy’s heavy dependence on the U.S. dollar.

The Central Bank of Somalia is preparing to introduce new Somali shilling banknotes as part of a broader effort to rebuild the country’s monetary system. The planned reform comes more than three decades after the collapse of Somalia’s central government and formal banking institutions in 1991.

Since then, the Somali economy has increasingly relied on the U.S. dollar, particularly for larger transactions, business activity and mobile money payments. At the same time, large quantities of old and counterfeit Somali shilling notes have continued to circulate in local markets.

The government now wants to reverse some of that dependence by restoring the Somali shilling as a credible legal tender.

The reform is expected to replace outdated notes and establish a more reliable national currency that can be used by ordinary consumers, traders and businesses.

The IMF, however, has advised Somali authorities to move carefully and ensure that the reform is supported by strong financial controls, institutional capacity and public confidence.

Currency reform can be particularly sensitive in an economy where people have relied on foreign currency for many years. A poorly managed transition could disrupt prices, payments and business activity, especially if the public does not trust the new notes or if there are concerns about inflation.

For Somalia, the challenge is made more complicated by the dominance of mobile money.

Digital transactions have become central to daily economic life, allowing millions of Somalis to pay for goods and services, send money to relatives and conduct business without relying heavily on physical cash.

Much of that mobile money activity is denominated in U.S. dollars.

The introduction of new Somali shilling notes therefore represents more than simply replacing old currency. It could require changes across banks, telecommunications companies, mobile payment platforms, businesses and government institutions.

Authorities will also need to determine how the new notes will interact with dollar-denominated transactions and whether the Somali shilling will gradually gain a larger role in salaries, retail payments, taxes and government services.

One of the government’s main objectives is financial inclusion.

Many Somalis remain outside the formal banking system, particularly in rural communities and among lower-income households. A stable national currency could make cash transactions more reliable and give the Central Bank greater influence over the country’s financial system.

The reform could also help Somalia rebuild basic monetary policy tools that have been largely absent for decades.

A functioning national currency would give the Central Bank a stronger foundation for managing liquidity, supervising the financial sector and developing a more formal domestic payments system.

But restoring public trust will be critical.

Somalis have lived with counterfeit currency and dollarisation for years, making confidence in any newly issued banknote essential to the reform’s success.

Authorities will need to explain how the new currency will be distributed, how old notes will be exchanged and what measures will prevent counterfeiting.

Banks, money transfer companies and telecommunications firms will also have to be closely involved in the transition.

The government is expected to introduce the reform gradually rather than attempting an immediate replacement of the dollar.

The U.S. dollar is likely to remain important to Somalia’s economy even after new shilling notes enter circulation.

For the Central Bank, the broader objective is to create a credible domestic currency that can coexist with foreign currencies while slowly rebuilding confidence in Somalia’s monetary institutions.

The IMF’s warning underscores the scale of that challenge. Reintroducing a national currency after more than three decades of dollarisation will require careful planning, strong supervision and public confidence if the reform is to achieve its intended goals.