The Devastating Local Currency and the Unofficial Dollarization in Somalia

Öz

Currency devaluation and prevalent unofficial dollarization in Somalia inspired the volatility of exchange rate. U.S dollar has become a good choice to store the value to prevent the volatility of the Somali Shilling and its frequent devaluation. Almost all price tags of products and services are charged in dollar form including the salaries of public and private employees, taxes collected by the central government and FMS, rentals and school fees. Commercial banks deposit, lend clients and charge bank fees solely in USD. The only remaining one denominator of the Somali Shilling in the markets is heavy to carry, old and damaged to be in circulation and susceptible to be faked. The study employed time series analysis to investigate the volatility of the exchange rate and its relationship with the dollarization using daily nominal exchange rate data for the study period 2009–2018. Empirical results indicate that the exchange rate regime has no major consequence in promoting dollarization. Introducing new domestic currency is deemed very necessary, but considering the challenges faced by the weak central authority, such initiative is hard to be achieved in the near future.

Anahtar Kelimeler

• Dollarization,Exchange rate volatility,Currency devaluation,Somali Shilling

Kaynakça

1. African Development Bank (2019), “African Economic Outlook 2019” [online]. Publications 14 March 2019-175 Tunis. Available from https://www.afdb.org /en/knowledge/publications/african-economic-outlook/
2. Alesina, Alberto and Robert J. Barro (2001), "Dollarization." American Economic Review, 91(2), 381-385.
3. Balino, T., Bennet, A. and Borensztein, E. (1999), "Monetary Policy in Dollarized Economies" [online]. Occasional Paper 171, Available from https://www.imf.org/external/pubs/nft/op/171/
4. Bogetic, Zeljko (2000), "Official Dollarization: Current Experiences and Issues", Cato Journal, 20(2), 179-213.
5. Bollerslev, Tim (1986), "Generalized Autoregressive Conditional Heteroskedasticity", Journal of Econometrics, 31(3), 307-327.
6. Business dictionary (2019), “Definition of Dollarization” [online]. Available from http://www.businessdictionary.com/definition/dollarization.html [Accessed 16.5. 2019].
7. Calvo, G. A. (2002), "On Dollarization" Economics of Transition, 10(2), 393-403.
8. Chiţu, Livia (2012), “Was Unofficial Dollarization/Euroization An Amplifier of the “Great Recession” of 2007-2009 In Emerging Economies?” Working Paper Series No 1473 Frankfurt. Available from https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1473.pdf

9. Chossudovsky, Michel. (2011), “Somalia: the Real Causes of Famine” [online]. , Available from https://www.globalresearch.ca/somalia-the-real-causes-of-famine/25725 [Accessed 21.2. 2019].
10. Duffy, J., Nikitin, M., Smith R. Todd (2004), "Dollarization Traps", Journal of Money, Credit, and Banking, 38(8), 1-34.Eichengreen, B. (2002), "When to Dollarize", Journal of Money, Credit, and Banking, 34(1), 1-24.
11. Engle, Robert F. (1982), "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation" Econometrica, Econometric Society, 50(4), 987-1007.
12. Honig, Adam. (2009), "Dollarization, Exchange Rate Regimes and Government Quality", Journal of International Money and Finance, 28(2)198-214.Kang, Kiwon (2005), "Is Dollarization Good for Cambodia?", Global Economic Review, 34(2), 201-211.
13. Koshin, Muktar Adan A. (2017), "Overcoming Challenges in an Unrecognized Economy: Experience from Somaliland", American International Journal of Contemporary Research, 7(1) 79-86.
14. Lakić S., Šehović D. and Ćetković J. (2016), “An analysis of the offi cial dollarization regime in Montenegro: theoretical approaches and empirical evidence”, Journal of International Studies, 9(2), 48-64.
15. Marcia Towers, & Borzutzky, S. (2004), "The Socioeconomic Implications of Dollarization in El Salvador", Latin American Politics and Society, 46(3), 29-54.Matthews, David A; Balasundram Maniam; Leavell, Hadley; Burke, Claudine.(2006),"The Case of Ecuador's Dollarization", Journal of Economics and Economic Education Research, 7(3) 87-101.
16. Mengesha, Lula G. & Holmes, Mark J. (2015), "Does dollarization reduce or produce inflation?”, Journal of Economic Studies, 42(3), 358-376.Musse, Osman Sayid Hassan and Echchabi, Abdelghani (2017), "Dollarization in East Africa: Causes, Consequences and Future Forecasts", Binus Business Review, 8(1), 15-22.
17. Musoke, Zakia (2017), "An empirical investigation on dollarization and currency devaluation: A case study of Tanzania", Economics Discussion Papers, Kiel Institute for the World Economy, 1-17.Nor, M. Ibrahim. (2012), "The Effect of Dollarization on Developing Economies: Lessons From Somalia's Informal Market" Academic Research International, 2. 591-597.