Abstract
A weak currency increases trade costs, causing inflation, reducing purchasing power, deterring foreign investment, and causing economic instability and financial uncertainty. A robust local currency strengthens national economic sovereignty. This paper examines the challenges facing the Somali Shilling and explores strategies for rebuilding public trust in the national currency, and analyzes the factors contributing to the currency's depreciation, such as excess currency circulation, limited financial oversight, and the widespread use of foreign currency. The paper reviews the existing literature and highlights that the collapse of Somalia's central government in 1991 destabilized the economy, causing currency devaluation, hyperinflation, and counterfeit activities. It also illustrates the effect of dollarization on the economy and its impact on the Somali Shilling. The paper states that modern money is backed by public trust, indicating that modern currency reflects government trust and citizen credibility. The study recommends restructuring the central bank, promoting economic stability, and addressing counterfeit currency issues. Central banks can strategically manage local currency to stimulate economic growth. Additionally, it emphasizes the importance of fostering trust in government institutions and implementing effective policies to enhance the currency's value and stability. By addressing these challenges, Somalia can strengthen its economy and reduce its reliance on foreign currencies.