February 20, 2017
Recently, the Central Bank of Somalia (CBS) announced a financial reform package, including an investment of $60,000,000 in printing new paper currency. This proposal is little more than a waste of money, as these funds could be better spent regulating mobile money. By focusing on the development of Somali digital currency (SDC) instead of obsolete paper money, CBS can advance the future of all Somalis and take part in the digital money revolution.
In 2017, paper money is quickly becoming a thing of the past, particularly in Somalia, where many citizens lack access to a traditional banking system. Somalis have wholeheartedly embraced the use of mobile money, which is a collective method of exchanging money that permits them to send and receive funds via their cell phones. The use of this technology will help to move the country out of the mindset of the past and into the future of digital currency.
Over the past decade, Somalis have adopted the use of mobile money in a system that is both powerful and fragile. The mobile money process is built on ones and zeros in software applications, allowing Somali citizens to make payments and receive money throughout the world in a matter of seconds. The mobile money system works due to the innovation of the Somali private sector and their through hard work. Currently, problems in the system can only be resolved through these private institutions, which may leave Somali citizens vulnerable to fraud, abuse and mismanagement. The Somali government must step in to protect its citizens, without discouraging the private sector from continuing to strive for greater achievements in this field in the absence of action on the part of the CBS.
Given the state of the Somali economy, the CBS has a unique opportunity to make the Somali financial industrial a leader in the field of digital currency. Investing such a large sum of money in analog money printing is wasteful and unnecessary in 2017. Instead, the CBS should look to removing paper currency from circulating and focusing its efforts on digital currency. It can follow the lead of India, which has taken steps to address corruption by eliminating large denominations of its paper currency and promoting mobile money through a government-owned neutral platform.
The CBS should direct its resources towards empowering current mobile money innovation while protecting the integrity of the system. This can be achieved by creating policies to ensure fair competition and financial stability.
As it currently stands, there are a few companies that have monopolized the mobile money industry in Somalia. This includes Hawala players, banks and mobile money operators. These systems are generally not integrated, creating a situation where users are limited in how they can send and receive funds. The CBS can address this issue, ensuring that anyone using a mobile money system can utilize their money fully across Somalia and the world. It now has the opportunity to introduce a programmable money platform to the people of Somalia. This would allow CBS to remove the monopoly in the industry while encouraging innovation, protecting its citizens, and ensuring that all international financial regulations are followed.
Instead of wasting resources on outdated paper currency, the CBS should invest its funds and talent into building a robust crypto-currency system. This would put Somalia on the cutting edge, as one of the few countries in the world to allow the use of crypto-currency as a national currency. Crypto-currency is digital money that is not run by any government or institution, but the CBS can set both the regulations and policies to implement its use in Somalia. Crypto-currency is the future of currency, and CBS should take this opportunity to invest in this technology rather than outdated paper currency.
There are many types of digital or crypto-currencies currently on the international market. This includes bit coin, Dutch-coin, litecoin, ripple, ethereum and more. These currencies function in the same way that paper money does, and can be used in many places. This type of currency is based on a special field of mathematics known as cryptography, which is a method of secure communications. Cryptography is about hiding information and verifying the source of the information, and has been classified as a weapon due to its importance. In modern computers, cryptography software is widely used to encrypt everything from our email usernames and passwords to other sensitive information.
With the turmoil of recent years, the Somali people have come to trust private institutions over the government. The CBS should not focus its energy and resources on failed Somali currency; instead, it should take advantage of the momentum of the new president’s ambitions and invest in digital currency. By working to implement a digital currency system, the CBS can utilize its funding to ensure that both the Somali financial market and its citizens are protected, while addressing security issues and the financing of terrorist activities at the same time. If the CBS adapts to the technological innovations of the private sector and sets the bar high, all players in the Somali financial markets will be sure to join the market — and all will prosper as a result.
Managing Director- Ares Information Technology LLC
United Arab EmiratesInformation Technology and Services