Central Bank of Somalia
Encyclopedia
The Central Bank of Somalia (CBS) is the monetary authority
of Somalia
. Among other duties, it is in charge of ensuring financial stability, maintaining the internal and external value of the local currency, and promoting credit and exchange conditions that facilitate the balanced growth of the national economy. Within the scope of its powers, it also contributes to the financial and economic policies of the State.
opened a branch at Mogadishu
. This was the first bank of any sort in what is now Somalia. Then in 1938 Banco di Napoli established a branch in Mogadishu
and later one in Kismayo. (Banco di Napoli replaced Cassa di Risparmio di Torino, which had opened an office in Mogadishu in 1932.)
In 1952 National Bank of India (NBI), which later merged with Grindlays Bank to form National and Grindlays Bank, established branches in Berbera
and Hargeisa
in British Somaliland
. NBI was the first bank in British Somaliland and was the banker to the colonial government until British Somaliland joined Italian Somaliland
to form the Somali Republic in 1960. After the unification, National and Grindlays opened a branch in Mogadishu.
At some point prior to 1958 Banco di Roma established branches in Mogadishu and Merca
. Both it and Banco di Napoli also had branches in Ethiopia
, particularly in Eritrea
.
On 1 July 1960, the newly independent Republic of Somalia established the Banca Nazionale Somala (National Bank of Somalia) to take over the activities of the Cassa per la Circulazione Monetaria della Somali and the Mogadishu branch of Banca d'Italia
. The new bank combined central banking activities with commercial bank
ing activities.
In 1968 the government merged the Credito Somalo (Somali Credit Bank), which the Italian administration had established in 1954, with the Banca Nazionale Somalo.
After the bloodless coup d'état
of 1969 that saw Mohamed Siad Barre's ascension to power, the government in 1971 nationalized the four foreign banks - Banco di Roma, Banco di Napoli, National and Grindlays Bank and Banque de Port Said) - and combined them to form the Somali Commercial Bank. The government also established the Somali Savings and Credit Bank to take over the commercial branches of Banca Nazionale Somala, leaving the Banca Nazionale Somale with only central banking functions. The Somali Savings and Credit Bank had branches in Baidoa
, Beledweyne
, Berbera
, Bosaso, Burco
, Galkacyo, Qardho
, Hargeisa
and Kismayo, and for a while in Djibouti
.
On 8 February 1975, the government renamed the Banca Nazionale Somala to the Central Bank of Somalia (Bankiga Dhexe ee Soomaaliya). It also merged the Somali Commercial Bank and Somali Savings and Credit Bank to form the Commercial and Savings Bank of Somalia, which was at the time the only bank in the country. In 1990 the Commercial and Savings Bank of Somalia discontinued operations. At some point the Central Bank of Somalia too ceased functioning.
In 2009 the recently-formed Transitional Federal Government
re-opened the Central Bank of Somalia in Mogadishu as part of its campaign to restore national institutions. The Bank has an additional branch in Baidoa that is already operational with personnel in place.
The Governor serves as Chairman of the Board and is the Bank's Chief Executive Officer. He or she reports to and is a member of the Board of Directors. The Director General deputies for the Governor, and also assumes the role of the Bank's Chief Operations Officer.
objectives are:
Owing to a lack of confidence in the local currency, the US dollar
is widely accepted as a medium of exchange alongside the Somali shilling. Dollarization
notwithstanding, the large issuance of the Somali shilling has increasingly fueled price hikes, especially for low value transactions. This inflationary environment, however, is expected to come to an end as soon as the Central Bank assumes full control of monetary policy and replaces the presently circulating currency introduced by the private sector.
These remittance firms (hawala
s) have become a large industry in Somalia, with an estimated $1.6 billion USD annually remitted to the region by Somalis
in the diaspora via money transfer companies. The latter include Dahabshiil
, Qaran Express, Mustaqbal, Amal Express, Kaah Express, Hodan Global, Olympic, Amana Express, Iftin Express and Tawakal Express. Most are credentialed members of the Somali Money Transfer Association (SOMTA), an umbrella organization that regulates the community's money transfer sector, or its predecessor, the Somali Financial Services Association (SFSA).
As the reconstituted Central Bank of Somalia fully assumes its monetary policy responsibilities, some of the existing money transfer companies are expected in the near future to seek licenses so as to develop into full-fledged commercial banks. This will serve to broaden the scope of the national payments system to include formal cheques, which in turn is expected to reinforce the effectiveness of the use of monetary policy in domestic macroeconomic
management.
Financial institutions supervised by the CBS are:
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
of Somalia
Somalia
Somalia , officially the Somali Republic and formerly known as the Somali Democratic Republic under Socialist rule, is a country located in the Horn of Africa. Since the outbreak of the Somali Civil War in 1991 there has been no central government control over most of the country's territory...
. Among other duties, it is in charge of ensuring financial stability, maintaining the internal and external value of the local currency, and promoting credit and exchange conditions that facilitate the balanced growth of the national economy. Within the scope of its powers, it also contributes to the financial and economic policies of the State.
History
On 15 November 1920, the Banca d'ItaliaBanca d'Italia
Banca d'Italia is the central bank of Italy and part of the European System of Central Banks. It is located in Palazzo Koch, Roma, via Nazionale...
opened a branch at Mogadishu
Mogadishu
Mogadishu , popularly known as Xamar, is the largest city in Somalia and the nation's capital. Located in the coastal Benadir region on the Indian Ocean, the city has served as an important port for centuries....
. This was the first bank of any sort in what is now Somalia. Then in 1938 Banco di Napoli established a branch in Mogadishu
Mogadishu
Mogadishu , popularly known as Xamar, is the largest city in Somalia and the nation's capital. Located in the coastal Benadir region on the Indian Ocean, the city has served as an important port for centuries....
and later one in Kismayo. (Banco di Napoli replaced Cassa di Risparmio di Torino, which had opened an office in Mogadishu in 1932.)
In 1952 National Bank of India (NBI), which later merged with Grindlays Bank to form National and Grindlays Bank, established branches in Berbera
Berbera
Berbera is a city and seat of Berbera District in Somaliland, a self-proclaimed Independent Republic with de facto control over its own territory, which is recognized by the international community and the Somali Government as a part of Somalia...
and Hargeisa
Hargeisa
Hargeisa is a city in the northwestern Woqooyi Galbeed region of Somalia. With a population of approximately 2 million residents, it is the second largest city in the country. Hargeisa is the capital of Somaliland, a self-declared republic that is internationally recognized as an autonomous region...
in British Somaliland
British Somaliland
British Somaliland was a British protectorate in the northern part of present-day Somalia. For much of its existence, British Somaliland was bordered by French Somaliland, Ethiopia, and Italian Somaliland. From 1940 to 1941, it was occupied by the Italians and was part of Italian East Africa...
. NBI was the first bank in British Somaliland and was the banker to the colonial government until British Somaliland joined Italian Somaliland
Italian Somaliland
Italian Somaliland , also known as Italian Somalia, was a colony of the Kingdom of Italy from the 1880s until 1936 in the region of modern-day Somalia. Ruled in the 19th century by the Somali Sultanate of Hobyo and the Majeerteen Sultanate, the territory was later acquired by Italy through various...
to form the Somali Republic in 1960. After the unification, National and Grindlays opened a branch in Mogadishu.
At some point prior to 1958 Banco di Roma established branches in Mogadishu and Merca
Merca
Merca is a port city on the coast of southern Somalia, facing the Indian Ocean. It is the main town in the Shabeellaha Hoose region, and is located approximately southwest of the nation's capital, Mogadishu.-History:...
. Both it and Banco di Napoli also had branches in Ethiopia
Ethiopia
Ethiopia , officially known as the Federal Democratic Republic of Ethiopia, is a country located in the Horn of Africa. It is the second-most populous nation in Africa, with over 82 million inhabitants, and the tenth-largest by area, occupying 1,100,000 km2...
, particularly in Eritrea
Eritrea
Eritrea , officially the State of Eritrea, is a country in the Horn of Africa. Eritrea derives it's name from the Greek word Erethria, meaning 'red land'. The capital is Asmara. It is bordered by Sudan in the west, Ethiopia in the south, and Djibouti in the southeast...
.
On 1 July 1960, the newly independent Republic of Somalia established the Banca Nazionale Somala (National Bank of Somalia) to take over the activities of the Cassa per la Circulazione Monetaria della Somali and the Mogadishu branch of Banca d'Italia
Banca d'Italia
Banca d'Italia is the central bank of Italy and part of the European System of Central Banks. It is located in Palazzo Koch, Roma, via Nazionale...
. The new bank combined central banking activities with commercial bank
Commercial bank
After the implementation of the Glass–Steagall Act, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S...
ing activities.
In 1968 the government merged the Credito Somalo (Somali Credit Bank), which the Italian administration had established in 1954, with the Banca Nazionale Somalo.
After the bloodless coup d'état
Coup d'état
A coup d'état state, literally: strike/blow of state)—also known as a coup, putsch, and overthrow—is the sudden, extrajudicial deposition of a government, usually by a small group of the existing state establishment—typically the military—to replace the deposed government with another body; either...
of 1969 that saw Mohamed Siad Barre's ascension to power, the government in 1971 nationalized the four foreign banks - Banco di Roma, Banco di Napoli, National and Grindlays Bank and Banque de Port Said) - and combined them to form the Somali Commercial Bank. The government also established the Somali Savings and Credit Bank to take over the commercial branches of Banca Nazionale Somala, leaving the Banca Nazionale Somale with only central banking functions. The Somali Savings and Credit Bank had branches in Baidoa
Baidoa
Baidoa is a city in south-central Somalia, situated by road northwest of the capital Mogadishu. It is the capital of the Bay region, which is traditionally inhabited by the Digil and Mirifle clans....
, Beledweyne
Beledweyne
Beledweyne is a city in central Somalia. It is the capital of the Hiraan province, and is located in the central valley of the Shebelle river near the Ogaden, some 206 miles north of Mogadishu, the nation's capital. The Shebelle river divides the town into east and west...
, Berbera
Berbera
Berbera is a city and seat of Berbera District in Somaliland, a self-proclaimed Independent Republic with de facto control over its own territory, which is recognized by the international community and the Somali Government as a part of Somalia...
, Bosaso, Burco
Burco
Burao is the capital city of the Togdheer province in Somaliland, a self-declared republic that is internationally recognized as an autonomous region of Somalia. In terms of population, it is the second largest city in Somaliland after Hargeisa.-History:...
, Galkacyo, Qardho
Qardho
Qardho is a town in the northeastern Bari region of Somalia. It is the center of the Qardho District.-References:*...
, Hargeisa
Hargeisa
Hargeisa is a city in the northwestern Woqooyi Galbeed region of Somalia. With a population of approximately 2 million residents, it is the second largest city in the country. Hargeisa is the capital of Somaliland, a self-declared republic that is internationally recognized as an autonomous region...
and Kismayo, and for a while in Djibouti
Djibouti
Djibouti , officially the Republic of Djibouti , is a country in the Horn of Africa. It is bordered by Eritrea in the north, Ethiopia in the west and south, and Somalia in the southeast. The remainder of the border is formed by the Red Sea and the Gulf of Aden at the east...
.
On 8 February 1975, the government renamed the Banca Nazionale Somala to the Central Bank of Somalia (Bankiga Dhexe ee Soomaaliya). It also merged the Somali Commercial Bank and Somali Savings and Credit Bank to form the Commercial and Savings Bank of Somalia, which was at the time the only bank in the country. In 1990 the Commercial and Savings Bank of Somalia discontinued operations. At some point the Central Bank of Somalia too ceased functioning.
In 2009 the recently-formed Transitional Federal Government
Transitional Federal Government
The Transitional Federal Government is the current internationally recognized government of the Republic of Somalia. It was established as one of the Transitional Federal Institutions of government as defined in the Transitional Federal Charter adopted in November 2004 by the Transitional...
re-opened the Central Bank of Somalia in Mogadishu as part of its campaign to restore national institutions. The Bank has an additional branch in Baidoa that is already operational with personnel in place.
Organs
In accordance with the Central Bank Act, the organs of the Bank are as follows:- Board of Directors
- Governor and Deputy Governor
- Director General
The Governor serves as Chairman of the Board and is the Bank's Chief Executive Officer. He or she reports to and is a member of the Board of Directors. The Director General deputies for the Governor, and also assumes the role of the Bank's Chief Operations Officer.
Departments
The Central Bank of Somalia's functions are divided into nine departments:- Banking Operations and Payment System
- Finance
- Internal Audit
- Economic Research
- Supervision
- Human Resources
- Management Information Systems
- Administration Services
- Legal Services
Board of Directors
- Prof.Abdirisak Abdisalam warsame– Governor
- Prof.Mohamed Abdirahman Ismail "Timo" - Deputy Governor
- Prof. Guleid Mohamed Saed– General Director
- Prof.Abdisamad Ahmed Hiirad – Deputy General Director
- Ahmed abdirahman jama bihi– Member
- Abdullahi A. Hussein – Member
- Mohamud Jirdeh Hussein – Member
- Ali Aden Hussein – Member
- Abdirashid Shire Hussein – Member
Framework
Chapter II, Art. 2, Section (2) of the Central Bank of Somalia Act stipulates that the functions of the Bank are as follows:Objectives
The Central Bank of Somalia's medium and longer-term monetary policyMonetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
objectives are:
- Price stability.
- Formulating and implementing monetary and exchange rateExchange rateIn finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
policies. - Maintaining and enhancing the value of the Somali shillingSomali shillingThe Somali shilling is the official currency of Somalia...
. - Maintaining financial stability.
- Harmonizing and coordinating government fiscal policiesFiscal policyIn economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....
with monetary policies. - Promoting a sound credit and payments system both internationally and internally.
Overview
In terms of financial management, the newly-revived Central Bank of Somalia is in the process of assuming the task of both formulating and implementing monetary policy.Owing to a lack of confidence in the local currency, the US dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
is widely accepted as a medium of exchange alongside the Somali shilling. Dollarization
Dollarization
Dollarization occurs when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency. The term is not only applied to usage of the United States dollar, but generally to the use of any foreign currency as the national currency.The biggest economies to have...
notwithstanding, the large issuance of the Somali shilling has increasingly fueled price hikes, especially for low value transactions. This inflationary environment, however, is expected to come to an end as soon as the Central Bank assumes full control of monetary policy and replaces the presently circulating currency introduced by the private sector.
Payment system
Although Somalia has had no central monetary authority for upwards of 15 years between the outbreak of the civil war in 1991 and the subsequent re-establishment of the Central Bank of Somalia in 2009, the nation's payment system is actually fairly advanced due primarily to the widespread existence of private money transfer operators (MTO) that have acted as informal banking networks.These remittance firms (hawala
Hawala
Hawala is an informal value transfer system based on the performance and honor of a huge network of money brokers, which are primarily located in the Middle East, North Africa, the Horn of Africa, and South Asia...
s) have become a large industry in Somalia, with an estimated $1.6 billion USD annually remitted to the region by Somalis
Somali people
Somalis are an ethnic group located in the Horn of Africa, also known as the Somali Peninsula. The overwhelming majority of Somalis speak the Somali language, which is part of the Cushitic branch of the Afro-Asiatic language family...
in the diaspora via money transfer companies. The latter include Dahabshiil
Dahabshiil
Dahabshiil is an international funds transfer company headquartered in Dubai, United Arab Emirates. Formed in the early 1970s, the firm operates from over 24,000 outlets and employs more than 2,000 people across 144 countries. It provides a broad range of financial services to international...
, Qaran Express, Mustaqbal, Amal Express, Kaah Express, Hodan Global, Olympic, Amana Express, Iftin Express and Tawakal Express. Most are credentialed members of the Somali Money Transfer Association (SOMTA), an umbrella organization that regulates the community's money transfer sector, or its predecessor, the Somali Financial Services Association (SFSA).
As the reconstituted Central Bank of Somalia fully assumes its monetary policy responsibilities, some of the existing money transfer companies are expected in the near future to seek licenses so as to develop into full-fledged commercial banks. This will serve to broaden the scope of the national payments system to include formal cheques, which in turn is expected to reinforce the effectiveness of the use of monetary policy in domestic macroeconomic
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...
management.
Banking supervision
The financial institution Decree Law No. 37 of November 23, 1989 mandates the Central Bank of Somalia to oversee domestic financial institutions through the CBS' banking supervision department.Financial institutions supervised by the CBS are:
- Commercial banks
- Credit institutions
- ForexForeign exchange marketThe foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
bureaus - Money transfer operators (MTO)
Vision
The Central Bank Training Institute is a governance and capacity building center within the CBS that offers its constituents the opportunity to meet the immediate needs of a post-conflict country. It aims to construct a solid foundation for vibrant entrepreneurial activity, as well as a transparent and accountable public administration that will help stimulate long-term growth and stability through professional training.Objectives
The main objectives of the Institute are:- To enhance human capitalHuman capitalHuman capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...
for greater productivity. - To establish a supportive environment for the growth and development of the private sector.
- To reinforce the skills of the civil service and other institutions for up-to-date and high quality services.
- To strengthen transparency and accountability measures in order to foster trust, with a special emphasis on training in the banking, finance, administration and governance fields.
See also
- Economy of SomaliaEconomy of SomaliaAccording to the CIA and the Central Bank of Somalia, despite experiencing civil unrest, Somalia has maintained a healthy informal economy, based mainly on livestock, remittance/money transfer companies and telecommunications. Due to a dearth of formal government statistics and the recent civil...
- Somali shillingSomali shillingThe Somali shilling is the official currency of Somalia...
- Central banks and currencies of AfricaCentral banks and currencies of AfricaThere are two African currency unions associated with multinational central banks; the West African Banque Centrale des Etats de l'Afrique de l'Ouest and the Central African Banque des Etats de l'Afrique Centrale...
- Arab BanksArab BanksThe modern system of Arab banks was created in Egypt in the late 19th century, with the campaign of modernizing the country. Today Arab banks are among the most pioneering in Developing Countries, and some are competitors to major international banks....
- List of central banks