This study addresses the pivotal issue of establishing a national currency and a functional monetary policy for Somalia, in the wake of decades of reliance on the US dollar and institutional instability. The study assesses the suitability of various monetary policy frameworks and exchange rate regimes, including dollarization and currency boards, in the context of Somalia’s economic realities and institutional capacity.
The study’s principal insights include the necessity of enhancing the credibility of the Central Bank of Somalia (CBS) to guarantee the effective implementation of any policy. The study recommends a cautious approach to currency issuance, suggesting that Somalia considers a currency board arrangement as a more stable alternative to outright dollarization. Furthermore, it emphasizes the necessity for public education on monetary changes, careful planning of the new currency, and the unification of exchange rates to facilitate the transition. The implementation of a strategic plan will enable Somalia to establish a stable monetary environment that fosters long-term economic recovery and growth.
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