Somaliland business people officially stop using Somaliland shilling and say it is useless

[Saalax]

 

 

 

Qaar Ka Mid Ganacsatada Hargeysa Oo Joojiyay Shilinka S,Land

 

[maakhiri1]

hyperinflation is out of control, and DP WORLD buying US dollars,is more fuel to the fire

[YoniZ]

Maakhiri,

This last episode of the shilling crisis is caused by not inflation or oversupply but bad monetory policy.

The shilling strengthening committee started to implement something they did not build the ground for and, with zero contingency plan. 

25000SLS for cup of coffee and pastry day before yesterday. The same items cost me 27500SLS yesterday from the same coffee shop.

Oodka,

I advice you to closely examine brief history of the darling friend's interventions in the economy of their newly found allies. Are they in a better shape economically and politically than they were before? Add that to the measure of reliability as a friend in hard times.

This last shilling fiasco is more to lack off capable guys at the treasury than dollar shortages. 

 

 

[maakhiri1]

Thanks for the update gents, the apps like ZAAD and eDahab have big  problem  of high dollarisation, and kills the central bank(makes it redundant) , and as the gov put it, should  be regulated and not be allowed  in small transactions.

 

[maakhiri1]

^UAE has indeed deep pockets, they recently saved Khartoum, which is facing very similar problem

 

 

As Sudan struggles to tackle an acute foreign exchange crisis, the United Arab Emirates has stepped in and offered $1.4 billion to Sudan’s Central Bank.

According to Sudan’s state news Agency (SUNA ), the deposit was provided by the Abu Dhabi Fund for Development.

The UAE aid comes just days after SUNA reported that the central bank had agreed to a $2 billion loan from Turkish conglomerate Ozturk to help Sudan purchase petroleum products and wheat.

The report did not provide details of the deal.

The Sudanese pound has weakened against the dollar in recent months on the black market amid a shortage of hard foreign currency, in turn forcing the central bank to devalue the pound twice this year.

Since January, sporadic protests have erupted in Khartoum and some other parts of the country after the cost of bread soared on the back of rising flour prices.

The authorities have curbed the protests, but high food prices continue to spread discontent across the country.

 

 

[Tallaabo]

I am not an economist but I can't help but wonder why the government of Somaliland is not pegging our currency to the US Dollar like some other countries do?

[Suldaanka]

Great analysis there Diktoore.

What is making things more profound at this moment is the ban on livestock exports which used to bring in lots of hard currency into the local market. 

In order for Somaliland to have stable local currnecy they need to address the different ways hard currency is leaving the country i.e. Khat imports,  Food imports (i.e. Fruit and Vegetables, as well as Milk Powder, Sugar,Rice and Pasta). If there are local alternatives to that, i.e. locals start eating Fish from our seas, establish local produce to satisfy loca Veg/Fruitl market demands. And replace Pasta/Rice with locally produced Surgham and  wheat. 

That will basically address almost 50% of the issue with currency. Because all those products locally made will be exchanged using local currency and hard currency will stay in the country. 

[Tallaabo]

2 hours ago, Oodweyne said:

Tallaabo,

I am not an economist either. But from I can gather, at least from recent history, that will be a devastating policy move, really.

You see if you peg your currency into some other currency (or basket of currencies) then the minute the exchange rate moves (up and down) then the monetary committee of the central bank will have to move with that daily gyration just to "defend" the pegged-position of your currency.

And that implies due to the low-level of Somaliland's economy capacity and in-terms of having no larger "comparative advantage" in which can help you to hold on your end actually means you will be in "perpetual defensive mode" in just sustaining  your pegged-currency.

And every Dollar you have in your central bank will be "wasted" with this defensive scheme. And top of that, the Central bank will continue to increase the interests rate it charges to local currency just to increase the "worth" of the local currency versus the "appeal" of the foreign currency in which the SL-Shilling is pegged with has it.

And you do this "defensive mode" by way of selling and buying a large amount of other foreign currency in which you have "pegged" your currency with it at the market on a daily basis (sometimes in hourly basis). And you do that just to keep the exchange rate (or the fluctuating band) of your currency. And that will cost you dearly in hard-currency. 

That is why is really bad idea of "peg" your currency with others, as opposed to have a free floating exchange rate, whereby the level of your currency worth gets to be determined by market forces, provided the other macro-economic issues are being taking care of, such as taxation and the larger fiscal policies of the nation, and regulatory environment of the market.

And in the case of Somaliland, I think due to the low-level expertise capacity of the Finance Ministry, this has actually exasperated the whole issue.

But in all sense, this idea of "pegging" your currency into a fixed-rate exchange rate or even pegging your currency into a "free fluctuating exchange rate band" made out of a other currency (or basket of currencies) is really bad form of monetary policy. And it always end in tears.

And since you live in UK (I assumed) you could really easily recalled how UK came to dead-end with its attempt to "beg" the UK's sterling with the European Exchange-Rate Mechanism (ERM) in 1992.

And this was when UK tried to "shadow" the German's currency (in effect it was a soft form of "pegging") so that the value of the UK's sterling will fluctuate in "certain bands" of exchange rate in relation to the German's currency. 

And finally, due to it's low-economical capacity in relation with the German's over-capacity economy, actually meant that the UK was never in a position to keep its currency in "pegged" and "locked" in-step condition with the German's currency.

And the results was that the UK's Treasury under the then John Major's Tory government was forced to "abandoned" the "pegged condition" of the Sterling with the German's currency in September of 1992.

And that was after the UK's finance minster of that time by the name of Mr Norman Lamont (now Lord Lamont) have tried every trick in the book just to "safe" the pegging condition of Sterling , even to the extend of putting up the interests rate into a 15% in one single day.

Hence, if UK can't defend a "pegged currency" with all the financial resources it has in its disposal, then I fear Somaliland will not be in a position to "defend" any "pegged currency" even in a half-day. Much less said about defending a  "pegged currency" in a whole week. So, that is why I think this is a bad idea.   

Thanks for the information but what you have forgotten is that unlike the United Kingdom and other countries who tried this monetary policy of fixing their currency exchange to that of a larger economy, Somaliland's economy is already completely dollarised and our currency is not internationally traded. We buy and sell in US dollars, receive our remittance in US dollars, and even collect taxes in US dollars. So in effect pegging the Somaliland shilling to the US Dollar will only remove the headache of daily exchange rate fluctuations and save our cherished currency. 

[YoniZ]

7 hours ago, Oodweyne said:

 

YoniZ,

Agree in some sense. Particularly the lack of deep expertise of both monetary and fiscal policies at the Somaliland finance minster (or to use British's term, the Somaliland's Treasury). Of course,  even the recognized African's counties are having a mighty difficulty in managing their currencies as the case of Zimbabwe tragically demonstrate.

However where I disagree with you is the direct implication you are in a haste to draw in here. And by that I mean the SL-Shilling crisis has been in the making for some time. It's partly due to the "creeping Dollarization" of the economy, which is something that is a phenomenon in which most Sub-Sahara Africa are having to put up with.

And secondly, it's largely to do with this new aspect of world economy, which is the "digitization of the means of exchange" (i.e., mobile money-transfer).

Hence, something can be done when it comes to restricting the "reach" of "mobile money" into every day transaction. And that actually need a deep expertise in which I grand you we lack at the moment.

This is why we are asking the UAE's Treasury department (i.e., their finance ministry) to actually send some experts in this area of finance to help us really crack this problem. And remember, that, the UAE has the most developed financial experts in the whole of the Arab world. 

As for the inflation, as I said it, it has lot to do with the "money circulation", namely, our old friend of "over-printing the local currency" on one hand, and the lack of hard-currency on the other hand, since folks are "hording" it.

Hence, this arrangement in which the UAE's central bank will be the "lender-of-last-resort" in-terms of hard-currency deposit into the Somaliland's central bank, whereby, the central bank can then "open-and-close" the "spigot-of-hard-currency" into the market, depending of the exchange-rate of the day in the market, could go some way in actually stabilizing (at least initially) the ever rapidly deteriorating rate of exchange of SL-Shilling against the Dollar. This is the plan. But we shall see what comes out of it.

As for the UAE's history in dealing with other states, it of course tells a "cautious tale" of how one should be careful. Or at least "enter" into this sort of "relationship" with one's eyes wide open. And we in Somaliland, are no less awake to any circumstances in which we may find ourselves in so far this "budding relationship" we seems to have developed with the UAE is concern.

Hence, we know all of that. But we believe out of their "strategical interests", the current government of the UAE and we have reached a "far-reaching-deals" (i.e. political, economical, diplomatic, strategical).

And this in turn will have many facets and will take in many forms of "ground-implementation" (as it were). So, lets see how all of this will pan-out. 

Oodka,

Both public and local business are suffering now because of the Treasury incompetency.  This useless Guddi had one full year to plan proper transition and draw contingency plans, if some are needed.

They just kept repeating bold ideas without putting any hard work in to the practicalities.

The top guy at the central bank (aka khasnajiga dawladda) is more interested in putting stupid aluminum face lift at the bank buildings, than performing his duties as the head of the central bank.

Thousands of money exchange guys are left out idle. They cannot receive -like anyother person - mobile transactions less than $100. These guys should have got pre-issued special mobile numbers so they can make exchanges in smaller amounts.

The irony is, Mobile money companies took the lion share of the money exchange services, the opposite of what was aimed for. 

That is Hargeisa and, only God knows how people in remote ereas are effected in the past 7 days.

[Tallaabo]

3 hours ago, YoniZ said:

Oodka,

Both public and local business are suffering now because of the Treasury incompetency.  This useless Guddi had one full year to plan proper transition and draw contingency plans, if some are needed.

They just kept repeating bold ideas without putting any hard work in to the practicalities.

The top guy at the central bank (aka khasnajiga dawladda) is more interested in putting stupid aluminum face lift at the bank buildings, than performing his duties as the head of the central bank.

Thousands of money exchange guys are left out idle. They cannot receive -like anyother person - mobile transactions less than $100. These guys should have got pre-issued special mobile numbers so they can make exchanges in smaller amounts.

The irony is, Mobile money companies took the lion share of the money exchange services, the opposite of what was aimed for. 

That is Hargeisa and, only God knows how people in remote ereas are effected in the past 7 days.

I hope the average man and woman who elect these ill-educated politicians to high offices because of clan affiliation, now feel the pain of their bad decisions. What goes round comes round and bites in the ass 

[Duufaan]

Somaliland lacks economic valuablity. It is economy is based on trading goods produced from other regions and countries. With many ports in the region and bad relationship with neighboring regions, Somaliland economy will not improve anytime soon when livestock business is slow or not existing. The large and more diverse Somalia's economy can sustain more fake printed money but not Somaliland.  This has nothing to do economic structure or economic policy. It is simply demanding and supply issue which does not exist. The whole Somaliland economy is based on the follow of remains. The money  NGO organizations and foreign donations have limited impact. They are not known to be generous. The money they promise never reaches its target. The handouts from DP world and UEA are not enough to impact Somaliland's economy.  It is not getting better anytime soon. Younger people will leave, those who remain will not able to afford to marry. In fact, it was the Somali government who made differences last time. Only Moqdisho can help Hargeysa economy to improve, not Ethiopia or UEA.

 

 

[Tallaabo]

34 minutes ago, Duufaan said:

Somaliland lacks economic valuablity. It is economy is based on trading goods produced from other regions and countries. With many ports in the region and bad relationship with neighboring regions, Somaliland economy will not improve anytime soon when livestock business is slow or not existing. The large and more diverse Somalia's economy can sustain more fake printed money but not Somaliland.  This has nothing to do economic structure or economic policy. It is simply demanding and supply issue which does not exist. The whole Somaliland economy is based on the follow of remains. The money  NGO organizations and foreign donations have limited impact. They are not known to be generous. The money they promise never reaches its target. The handouts from DP world and UEA are not enough to impact Somaliland's economy.  It is not getting better anytime soon. Younger people will leave, those who remain will not able to afford to marry. In fact, it was the Somali government who made differences last time. Only Moqdisho can help Hargeysa economy to improve, not Ethiopia or UEA.

 

 

Do you really believe what you have written or are you just taking the mickey out of us? 

[Suldaanka]

2 hours ago, Duufaan said:

Somaliland lacks economic valuablity. It is economy is based on trading goods produced from other regions and countries. With many ports in the region and bad relationship with neighboring regions, Somaliland economy will not improve anytime soon when livestock business is slow or not existing. The large and more diverse Somalia's economy can sustain more fake printed money but not Somaliland.  This has nothing to do economic structure or economic policy. It is simply demanding and supply issue which does not exist. The whole Somaliland economy is based on the follow of remains. The money  NGO organizations and foreign donations have limited impact. They are not known to be generous. The money they promise never reaches its target. The handouts from DP world and UEA are not enough to impact Somaliland's economy.  It is not getting better anytime soon. Younger people will leave, those who remain will not able to afford to marry. In fact, it was the Somali government who made differences last time. Only Moqdisho can help Hargeysa economy to improve, not Ethiopia or UEA.

 

 

At least, Somaliland pays the salary for civil servants, justice, parliamentary, opposition, Clan leaders (Yes, some even take their salary while in Garowe), and security forces on time, everytime for the past 28 years. On top of that, it delivers projects, and services to the public. And not to mention keeps the country peace and safe. 

Villa AMISom can't even pay the salary of its limited civil servants. International community pays for the parliament salary and related activities. Turkey pays for the army and security. Qatar pays for travels and air tickets etc..

And we know about Puntland... no need to go there. 

What is happenning right now is just a combination of bad policy and external shocks. These are both temporary. 

[galbeedi]

Like most of you , I am not an economist either.  The Somaliland currency is different than what most nations feel during inflation or when the local currency loses value against the dollar. 

While there are inflation and sky rocketing of the dollar , the main issue is the government intervention to fix the problems are not  helping  the problem , but are aggravating the issue. The Sudan issue of depositing hard currency to allow the government to purchase foreign commodities or stabilize the dollar will not help Somaliland. In Somaliland, no one knows the amount of printed money circulating in the land including the central bank. So , this issue of depositing money is a red herring.

There are many examples around the world were local currency tanks to the floor  against the dollar due to mismanagement, speculation or people running to the bank and taking out huge amount of hard currency especially the dollar. When these issues of dollar shortage happens, most governments introduce what they call " currency controls" which controls the amount of foreign currency citizens withdraw from national banks.

In Somaliland, we do not have an independent bank. They do not have the power to control currency printing nor they have an economic policy to fight inflation. So far, the government policy to prop up the Somaliland Shilling are not working. All they did was force the regular people to use the Shilling in daily transaction through electronic and phone banking. As we speak, the phone banking volume is full of Somaliland Shilling and traders could not exchange for the dollar that they need to purchase things.

In My opinion, the best method to control the rise of the dollar is to introduce currency control to stop the flight of the dollar from the land. Rather target the regular people who are using five or ten dollars for their daily electronic or phone transactions, they  should have targeted the rich, the looters and Ethiopia to reduce the flight of the dollar.

 

The New rule allows the rich to take as much as possible through Zaad and E Dahab transactions. Also, Hawala companies are shipping millions of looted dollars out of the country. As we stated while ago in this pages, if there are more liquid (money) and less commodity to go  around, certainly the value of the basic commodities will rise and the value of the money will decline.

Let me  add my few senses here, if the " Gaas Dhagoole" who is in charge of the systems applies these measures things might slow down and stabilize at minimum.

1-Rather than target the small fraction transitions used by the poor, they must stop    the large dollar transition through the phone banking. 

2- Introduce currency controls to reduce the flight of the hard currency (Dollar) from Somaliland through the Hawala and through the looting. The last seven years, millions of dollars were looted and transferred both in London and Dubai through the Hawala companies. Here in the west where the economies and banking are solid, it is illegal to deposit large amount of cash, and if you deposit, the bank will ask you questions and at the same time  will call the government to report if the amount is even $10,000 dollars. Imagine, the Somali Hawala could transfer millions without no one asking them questions. Here , our local Hawala are required to record your license and other ID's if you send eve a thousand dollars. Stop dollar flight.

4- Qat transaction  with Ethiopia takes away hundreds of thousands of dollars a day from Somaliland. At the end of the year, over half billion worth of hard currency goes to the Ethiopian economy with zero exchange from the other side. No nation or people will accept a dangerous drug to steal their daily earnings without raising one single question. The loud mouth politicians love to hate Somalia and will not miss an opportunity to bad mouth or raise hell at the slightest infraction, yet the QAt issue is one of the biggest symptoms of the inflation. 

Since the elite and the politicians consume this drug , no one is expected to raise that issue. Imagine half billion dollars in circulation used for food and other basic needs of the citizen. It will definitely reduce inflation.

5- Last but not the least, the economic and the currency issue should be free of political and tribal interference. There are people who have extensive experience in banking and currency issues, but they might belong to the wrong tribe. MOdern capitalism can't  be run by nepotism or through incompetence. THe so called UAE some of you mentioned do not need expertise. They got billions to throw around, at the same time most of banking issues are run by the BRitish and other foreigners.

Targeting the business community or the established phone banking will not resolve the issue. In fact, it might slow down the business transactions and make the life of the regular difficult. 

Folks, these issues  will not go away  by making your incompetent ministers to resolve in one session. It needs experts.

Finally, without the livestock export, the whole economy is based on imports and resale. Price control must be also imposed on the basic foods. The government must reduce taxes for food imports and force merchants to charge the minimum, These can be verified through the orginal sale. I myself have seen a 25 kilo sack of sugar which reached Berbera port for $22 dollars . After a $3 dollar of taxes and transport charge per sack, I have seen that 25 killo sack selling $43 dollars in the whole sale (Bakhaarda Borama). I could not believe that those importers made over $300,000 dollars for every 1 ton of sugar. Somaliland is looted and the poor is suffering.

 

 

 

 

 

 

 

 

 

[YoniZ]

On 3/21/2018 at 1:06 AM, Tallaabo said:

I hope the average man and woman who elect these ill-educated politicians to high offices because of clan affiliation, now feel the pain of their bad decisions. What goes round comes round and bites in the ass 

I'm afraid the average man has not been given alternative choices. They have voted for continuity among the three dinosaur candidates which is understandable.