Your Excellency, the directives that you have recently issued regarding the stabilization of the USD exchange rate were generally well-thought and served the best interest of the people of Somaliland. However, there was one exception: Fixing of the USD selling rate at 7,000 which missed the point and could be catastrophic. In the following few lines,I will evaluate the decisions that the government has made based on my longstanding banking experience:
- The government ban of quoting USD on prices of goods and services was the most welcome directive. The Somaliland shilling is the legal tender of this Nation and all vendors should accept the local money. This will create real demand for the local currency and will help keep foreign exchange rates low. The Ministry of Commerce should setup teams that roam the streets to ensure this regulation is implemented and adhered to by all – small and large. No vendor of goods and services should be allowed to quoted prices in USD or insist on being paid in USD – no matter how large or prestigious they are.
- Prohibiting the USD denominated E-Money for transactions less the USD 100 was also another wonderful step in the right direction. The E-money providers (ZAAD and E-DAHAB) were quoting only the USD and creating fictitious demand for the Dollar, and causing steep depreciation of the Somaliland Shilling. The common man in the street was made to believe that he needs United States Dollars to buy food or pay for his kids school fees – that is sheer nonsense
- Prohibiting the big players like telecom providers, private banking etc. from operating in the foreign exchange market was also well-thought decision. These large and wealthy players could unintentionally or intentionally control the market and dictate the exchange rates. This will undermine the competition which is the backbone of a free economy.
- Empowering small foreign exchangers that are operating in open and active markets across the nation was another intelligent decision. After all, these operate in an open, active and competitive environment. The rates they quote reflect the fair value of the currencies – among fee, willing, and knowledge market players.
- However, the Decision to Fix the USDrate at 7,000 shillings was impractical and out of context. Your Excellency, your advisors in this issue were obviously armatures who were not aware of real repercussions of their decision. First, forcing the citizens to sell their wealth and property at loss and against their will is unconstitutional. Secondly, the exchange rates are govern by the forces of Demand and supply and not be memorandums. Thirdly, and most important, fixing the USD prices will only create Forex Black Markets across the country. Had the Somaliland Government possessed large foreign exchange deposits, it would have been in a position to guarantee stable exchange rates in the same way other nations are doing. But, as we are all aware our country does not have such capabilities.
In the circumstance, the government should TAKE HANDS OFF THE EXCHANGE MARKET. The shilling should be allowed to Float as recommended by the IMF and other world bodies. The government could get involved only in regulating the market with the intention of creating a competitive environment. The government should ensure that the small players operate freely without any intervention. The government could help these players by building Forex Auction Houses with Microphones and trading timing: For instance, the government will build small FOREX exchange market and rent it to some 20 traders in Hargeisa and smaller numbers in other main cities. This market will open at 9 Am and close at 2 Pm. The rates of exchanging the dollar and other major currencies as traded in this market will be displayed on the screen and published in the local newspaper on daily basis. The street exchangers should also continue to operate. This transparent system will create openness and no big players can corner or hoard the market and dictate the rates. BUT REMEMBER: No Government in intervention in fixing the rates or the market will automatically vanish.
Finally, I would recommend that the decision making apparatus of SL Central Bank should be placed under the control of broad-based 9 membersBoard of Directors in line with world standards as follows: A) One member from the private banks. B) One member from small foreign exchangers. C) Two members from the business community appointed through the Chamber of Commercial. D) Five members from government comprising the chairman of the Central Bank who should be senior world-class professional banker, with proven credentials.
Hassan Abdi Yousuf