Monday December 23, 2024
FILE - A Puntland trader counts Somali Shilling notes at a local market in Garowe, May 2016.
Garowe (HOL) — Puntland’s plan to introduce its own regional currency by 2025 signals a direct challenge to Somalia’s federal government, intensifying disputes over governance and financial autonomy in the fragile federal system.
The proposed currency would phase out the Somali Shilling in Puntland, where the U.S. dollar already dominates transactions. Deni framed the decision as essential for addressing economic challenges unique to the semi-autonomous state, citing the devaluation of the Somali Shilling and difficulties in accessing digital payment systems in rural areas.
“Our communities face immense hardship due to the inefficiency of the Somali Shilling,” Deni said during his announcement in Garowe. “We need a financial tool tailored to our realities. This isn’t about abandoning our Somali identity but finding solutions for Puntland’s economic needs.”
Puntland has long struggled with inflation and currency shortages, forcing the region to rely heavily on the U.S. dollar. Since 2021, the Somali Shilling has all but disappeared from circulation in Puntland following a sharp devaluation that rendered it ineffective for everyday transactions.
The Somali Shilling, introduced in 1960, once symbolized national unity but has struggled since the collapse of Somalia’s central government in 1991. Counterfeit notes flooded the market, and hyperinflation eroded the currency’s value, forcing many regions to adopt the U.S. dollar for transactions.
Today, the 1,000 Shilling note is the only Somali currency still in circulation, but even this is widely mistrusted. Efforts by the reestablished Central Bank of Somalia to reform the currency system have faced delays, compounding Puntland’s frustrations.
The Somali federal government, supported by the International Monetary Fund (IMF), has plans to replace old, counterfeit-ridden notes with newly printed Shillings. However, these reforms have been slow to materialize.
Deni’s administration argues that introducing a regional currency will stabilize Puntland’s economy and provide greater financial independence.
Critics, however, see the move as a step toward economic secession, further straining relations between Puntland and the federal government in Mogadishu.
The announcement has ignited legal debates over whether a federal member state can issue its own currency under Somalia’s provisional constitution.
Legal expert Zakariye Yusuf pointed to Chapter Five of the constitution, which defines the division of powers between the federal government and member states.
“Article 54 makes it clear that monetary policy falls under the exclusive jurisdiction of the federal government,” Yusuf said. “This means Puntland’s proposal directly contradicts Somalia’s constitutional framework.”
The clause also prohibits member states from independently engaging in financial agreements or policies with external entities, adding another layer of complexity to Puntland’s ambitions.
The latest action is part of a long-running dispute between Puntland and the federal government. Puntland has often accused Mogadishu of failing to uphold its responsibilities, including reforming Somalia’s outdated currency system.
“The federal government was once a unifying force across Somalia, but that reality no longer exists,” Deni said. “Puntland’s foundation was built on protecting our people’s interests, and we will continue to act in their best interest.”
Observers note that Puntland’s reliance on the U.S. dollar has fueled its push for financial autonomy. The state’s business community has already adapted to dollar-based transactions, weakening ties to the Somali Shilling.
Somalia remains heavily reliant on the U.S. dollar and electronic payment systems operated by private banks and telecommunications companies. While these systems have supported urban centers, rural communities often lack access, exacerbating financial inequality.
Puntland’s push for a regional currency could set a precedent for other federal member states. Nonetheless, the move raises pressing questions about Somalia’s federalism and the federal government’s ability to maintain economic cohesion.
- With files from the BBC Somali Service