Somalia Moves to Restore Its Currency After 35 Years of Dollar Dependence
Somalia is taking a major step toward reclaiming its monetary sovereignty, with the government preparing to reintroduce new Somali shilling banknotes more than three decades after the country last issued a functioning domestic currency.
Somalia is moving closer to restoring the Somali shilling after roughly 35 years without issuing new domestic banknotes, in a significant monetary reform aimed at rebuilding the country’s financial institutions and reducing its longstanding dependence on the US dollar. The Central Bank of Somalia says preparations for the currency reform have reached an advanced stage, with authorities working on the legal, regulatory and financial structures needed to support the return of a viable national currency.
Parliament is currently considering amendments connected to a proposed Currency Board Arrangement, while the Central Bank continues to finalise regulations covering foreign-exchange operations and the management of the country’s monetary reserves. The planned reform represents one of Somalia’s most ambitious efforts to rebuild its monetary system since the collapse of the government of President Siad Barre in 1991 plunged the country into civil war and severely weakened state institutions.
A currency system disrupted by decades of conflict
Somalia’s monetary crisis can be traced directly to the collapse of the central government in 1991. With the Central Bank no longer able to effectively issue, regulate and manage currency, the Somali shilling gradually lost its role as the country’s principal medium of exchange.
Over the following decades, counterfeit and heavily damaged banknotes became increasingly common, while the US dollar steadily emerged as the preferred currency for major transactions. Dollarisation eventually spread far beyond large commercial transactions. Businesses, households and financial-service providers increasingly relied on the dollar for trade, savings, remittances and electronic payments.
Mobile-money platforms, including widely used services such as EVC Plus, further entrenched dollar-based transactions in everyday economic life. Somalia’s large diaspora has also played an important role in sustaining the dollar’s influence. Billions of dollars are sent back to the country every year through remittance networks, including traditional hawala systems, providing an important source of household income while reinforcing the use of foreign currency.
The presence of international organisations, humanitarian agencies, foreign military personnel and security companies has added to the demand for US dollars.
Worn-out shillings highlight the scale of the problem
The absence of newly issued banknotes has left Somalia with a currency system in which some of the remaining shilling notes are decades old and in extremely poor condition. Images and videos circulating online have shown badly torn, faded and worn Somali shilling notes being tied together with string or rubber bands simply to keep them in circulation.
The problem became particularly visible in April, when businesses in Mogadishu and other parts of the country increasingly began refusing damaged shilling notes. For some traders and ordinary citizens, this has created a serious financial problem, with people holding old notes that are difficult to use for purchases or exchange.
Somalia’s Commerce Minister Jamal acknowledged the situation in April, saying that a process was underway to introduce new banknotes. The Central Bank has subsequently identified issuing a viable national currency and strengthening monetary policy tools as key strategic priorities.
Rebuilding monetary sovereignty
The proposed currency reform is about more than simply printing new banknotes. For Somalia, restoring a functioning national currency would give the Central Bank greater capacity to implement monetary policy, regulate the domestic financial system and develop tools for managing liquidity and economic stability..It could also strengthen the government’s ability to formalise economic activity and deepen the country’s financial institutions.
However, introducing new banknotes will not automatically persuade Somalis to abandon the dollar. After decades of conflict and monetary instability, confidence is likely to be one of the biggest challenges facing the reform. Households and businesses that have become accustomed to saving and conducting transactions in US dollars may be reluctant to switch to a currency whose long-term stability they have yet to trust.
Somaliland follows a separate monetary path
Somalia’s currency landscape is further complicated by the separate monetary system operating in Somaliland. Somaliland declared independence from Somalia in 1991, although it remains internationally recognised as part of Somalia. It introduced its own currency, the Somaliland shilling, in 1994 and has maintained a separate monetary system ever since.
This means that Somalia’s efforts to establish a stronger national currency are unfolding within an already fragmented monetary environment.
Zimbabwe provides a regional lesson
Somalia is not the only African country attempting to reduce its reliance on the US dollar. Zimbabwe offers a useful regional comparison. The country introduced the Zimbabwe Gold, or ZiG, in April 2024 following years of severe currency instability.
Yet despite the introduction of a new domestic currency, the US dollar remains deeply embedded in Zimbabwe’s economy. The International Monetary Fund estimates that roughly two-thirds of transactions by value in Zimbabwe’s national payment system were still conducted in US dollars in 2026.
The Zimbabwean experience demonstrates the difficulty of reversing dollarisation once households, companies and financial institutions have become accustomed to using a foreign currency. For Somalia, therefore, the challenge will extend well beyond printing and distributing new notes. Authorities will need to build confidence in the shilling, maintain monetary discipline and convince businesses and citizens that the currency can reliably preserve value.
Reform comes amid growing external pressure
Somalia’s currency initiative is also emerging at a particularly sensitive time for the country. The government continues to face security threats from al-Shabaab, while its institutions remain heavily dependent on international assistance.
The United States has indicated that it will stop supporting United Nations logistical backing for the nearly 12,000-member African Union Support and Stabilisation Mission in Somalia from 2027. The potential loss of international support for essential services such as food, fuel, medical assistance and troop transportation has raised concerns about the mission’s ability to operate effectively.
Washington has also ended Temporary Protected Status for nearly 1,100 Somalis living in the United States. These developments have added to uncertainty surrounding Somalia’s relationship with the United States and have increased pressure on Mogadishu to strengthen domestic institutions and become more self-reliant.
A defining test for Somalia’s financial future
The return of the Somali shilling could therefore become one of the most consequential economic reforms in Somalia’s modern history. After 35 years of relying heavily on the US dollar, the government is attempting to rebuild a monetary system that was effectively dismantled by war and institutional collapse.
If successfully implemented, the reform could provide the Central Bank with stronger monetary policy tools, improve financial regulation and restore an important element of national economic sovereignty.
But the road ahead will be challenging.
Somalia must overcome years of public distrust, widespread dollarisation, weak institutions, security concerns and a fragmented financial system. The experience of other African economies shows that a new currency can only succeed when people believe it is stable, useful and capable of retaining its value.
For a country that has spent more than three decades operating largely under the shadow of the US dollar, the planned return of the Somali shilling is not simply a currency change. It is a major test of Somalia’s ability to rebuild confidence in its own economic institutions and reclaim control over its financial future.
