Many moons ago I read John Kenneth Galbraith’s Money: Whence it came, Where it Went, and my interest in money grew with me over the years. I was always fascinated in its history, how it evolved over the years and its impact on human behaviour as well as national economies. It is valid question to ask what is the link between money in all its manifestations (from sea shells to cryptos) and national economic development. And why have I decided to combine them, money and economic development. I hope this will become clear by the time you finish reading this post.
The industrial revolution spurred growth in commercial exchange on a previously unimaginable scale. We need to remember that money played a complementary role in facilitating this economic transformation which we must accept led to an unprecedented increase in living standards. Fast forward, a couple of centuries on, the digital revolution has changed the world reshaping and raising important questions over the future of money. My interest here is to ask a fundamental question: is money used in Somalia fit-for-purpose in the digital age and, if not, how can we make it so? Books and academic papers are aplenty and there is no shortage of literature about the future of money in the digital era – how and by whom it might be created, what forms it might take, and what roles it might play.
But sometimes lost in this excitement, i.e. the evolution of money into digital form is a clear articulation of the economic problems that new forms of digital money might solve, particularly in countries like Somalia with limited or nonexistent regulatory framework and even reliable well-functioning payments system. In future posts, I will cover my position on the use of Mobile Money (MM) in Somalia, demoting the idea that MM promoted the well being of Somalis, let alone Financial Inclusion (FI) for all or advanced the national economy. To the contrary I will argue it has retarded any progress that was possible had the national resources of the country remained in the hands of any reliable functioning government*.
The evolution of money in Somalia, as in cash (notes and coins) to digital money happened in an unregulated environment and followed a less rigorous technical path. For the purpose of this article and convenience will limit the scope of the ‘money’ discussed here to currency, i.e., notes and coins which economists may reluctantly accept as M1 since we are discussing demand deposits, other liquid deposits—which includes savings deposits. An interesting topic on its own right, but unfortunately beyond the scope of this article.
After the collapse of the Somali government and during the period when legitimate functioning institutions were absent, an amazing phenomenon was taking place in Somalia: The illegal transfer of public utilities and resources such as telecom and financial services to the private sector. This is when the digitization of money and dollarization of the national currency happened, literally by group of businesspeople. This is unique in the modern history of nation-states. The amazing part of this unbelievable story is that even today when there is a functioning UN recognized Somali government, the private sector business group still manages the telecom and financial sector, not by stealth, but in all intents and purposes. While the legality (de-facto and de-jure) of this arrangement is a controversial assertion, the reality of this situtaion is from a reliable source and I stand to be corrected, if confirmation of its authenticity is doubted.
The World Bank, the IMF and in small part the Somali Central Bank(SCB) supported and allowed the current untenable situation, the implementation of MM which led to a serious financial exclusion in Somalia to continue. The underbanked and unbanked are known entities in the literature, however, MM in Somalia has introduced a new category, the ‘unbankable’. It is easy to justify, understand, even accept the motivation and reasons for what the Bretton wood institution are doing in Somalia. In July 1944 when they were setup their publicly declared aims were to help rebuild the shattered postwar economy and to promote international economic cooperation. However, those aims are now extended further to support countries like Somalia with mixed and sometimes negative outcomes.
It is hard to understand, and neither justifiable nor acceptable for the SCB to be ineffective in managing the banks, i.e. the length process and oft-delayed integration between the banks, the extreme Laissez-faire attitude to monetary policies and almost lack on control and oversight in the management of MM in Somalia. The lack of reliable and credible correspondence banks slows down cross-border financial transactions and fund transfer to Somalia. Is it fair question to ask where the MM users’ deposits are? How to mitigate possible risks such as the business collapse of MM providers? These are important and urgent questions that need to be answered to provide confidence in the MM industry which currently look and feel dubious business activity.
Then there is the Somali Financial Reporting Centre (FRC), https://frc.gov.so/, an entity that many Somalis are not sure of its activities. Its website claims that it derives its mandate from the Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) Act of 2016 with the objective to operate as a national central agency responsible for the receipt, analysis and appropriate dissemination of all information relating to money Laundering (ML) and terrorism financing (TF). An honorable objective, however, so far we have not seen or read any concrete outcomes. More importantly its structure, who and how it is funded remains to be shrouded in mystery. Its structure diagram starts from the Director and points downwards, many would like to see an arrow pointing upwards as well.
The preliminary result of my research on the impact of MM on Somalia’s financial inclusion indicate that the initial excitement of MM is not warranted. The current lack of functioning and credible regulatory of framework partially contributes to the original problem dismantling and removing the telecom and financial infrastructure from the government control. The status quo still remains that nothing much has changed in the running of the Telecom and Finance sector that also manage the Somali monetary system. This issue is heavily debated and covered in the Social media, See https://www.linkedin.com/posts/activity-7006670841568485377-Cy-i?utm_source=share&utm_medium=member_desktop
To move forward, the SCB, the Finance and the Telecommunication Ministries should revisit their roles on how they can manage the future of money in Somalia. Old questions remain unanswered, should there be a new currency? Is there an economic reason/value in printing new money? Throwing good after bad, so to speak. How to manage the MM in Somalia? Should the SCB consider new forms of money such as Central Bank Digital Currency (CBDC)? These and many more similar questions need formal answers from trustworthy Somali government officials to ensure that we are well prepared for the fast approaching revolution in what we used to call money.
I would like to suggest enhancing and regulating the MM sector with rigorous government oversight and setting up a trust account for all MM deposits under the government control and an arms length interaction from the MM providers. The government to encourage cashless society and limit the use of cash to very minimum, and not to print any more notes. There is enough evidence to suggest Somalis are ready for formal government inquiries into the telecom and finance sector, and the exploration of all options, including nationalisation of strategic services such as finance and telecom. Merging the two ministries is also worthwhile idea to be studied as well as making the national communication authority a serious institution with independent board.
Feed back and comments as always welcome.
* https://gulfnews.com/world/mena/somalias-other-pirates---the-telecom-companies-1.1278269
For those interested more on this topic I would like to suggest watching the videos below:
Thanks for the comment and you could be right. However, it is better to share knowledge and inform our community.
I dare say entities who own the whole country…..