Central Bank of Somalia

Central Bank of Somalia Bankiga ee Dhexe ee Soomaaliya البنك المركزي في الصومال
Headquarters	Mogadishu, Somalia
Governor	Bashir Issa Ali
Central bank of	Somalia
Currency	Somali shilling
ISO 4217 Code	SOS
Website	www.somalbanca.org

The Central Bank of Somalia (CBS) (Somali: Bankiga ee Dhexe ee Soomaaliya, Arabic: البنك المركزي في الصومال‎) 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.^[1]

History

Part of a series on Government
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Policies Economic policy Fiscal policy · Monetary policy Trade policy · Investment policy Agricultural policy · Industrial policy Energy policy · Social policy Policy mix
Fiscal policy Tax policy · Budgetary policy Revenue · Spending · Budget Deficit or Surplus · Deficit spending Debt (External · Internal) Finance ministry · Fiscal union
Monetary policy Money supply · Interest rate Monetary base · Discount window Reserve requirements Bank reserves · Gold reserves Monetary authority (Central bank · Currency board) · Monetary union
Trade policy Tariff · Non-tariff barrier Balance of trade · Gains from trade Trade creation · Trade diversion Protectionism · Free trade Commerce ministry · Trade bloc
Revenue and Spending Tax revenue · Non-tax revenue Mandatory spending Discretionary spending
Optimum Balanced budget (Fiscal) Price stability (Monetary) Growth (Trade and Investment)
Reform Fiscal adjustment · Monetary reform
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On 15 November 1920, the Banca d'Italia 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 banking 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.^[2] The Bank has an additional branch in Baidoa that is already operational with personnel in place. ^[3]

Organizational structure

Organs

In accordance with the Central Bank Act, the organs of the Bank are as follows:^[4]

• 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.^[4]

Departments

The Central Bank of Somalia's functions are divided into nine departments:^[4]

1. Banking Operations and Payment System
2. Finance
3. Internal Audit
4. Economic Research
5. Supervision
6. Human Resources
7. Management Information Systems
8. Administration Services
9. Legal Services

Structural overview

Management and administration

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

Monetary policy

Framework

Chapter II, Art. 2, Section (2) of the Central Bank of Somalia Act stipulates that the functions of the Bank are as follows:

The Bank [may] exercise any type of central banking function and shall enjoy all the prerogatives of a Central Bank, and without prejudice to the generality of the foregoing shall in particular have the power to issue currency, regulate the banking and credit system, and manage the external reserves of the Republic.^[5]

Objectives

The Central Bank of Somalia's medium and longer-term monetary policy objectives are:^[5]

• Price stability.
• Formulating and implementing monetary and exchange rate policies.
• Maintaining and enhancing the value of the Somali shilling.
• Maintaining financial stability.
• Harmonizing and coordinating government fiscal policies 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.^[5]

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.^[5]

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.^[3]

These remittance firms (hawalas) 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.^[6] 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).^[7][8]

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.^[3]

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.^[9]

Financial institutions supervised by the CBS are:^[9]

• Commercial banks
• Credit institutions
• Forex bureaus
• Money transfer operators (MTO)

Central Bank Training Institute

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.^[10]

Objectives

The main objectives of the Institute are:^[10]

• To enhance human capital 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 Somalia
• Somali shilling
• Central banks and currencies of Africa
• Arab Banks
• List of central banks

Notes

1. ^ Central Bank of Somalia - About the Bank
2. ^ AfDB approves a $2m grant for Somalia
3. ^ ^{a b c} Central Bank of Somalia - Payment system
4. ^ ^{a b c} Central Bank of Somalia - Organizational structure
5. ^ ^{a b c d} Central Bank of Somalia - Monetary policy
6. ^ "Somalia". World Factbook. Central Intelligence Agency. 2009-05-14. https://www.cia.gov/library/publications/the-world-factbook/geos/so.html. Retrieved 2009-05-31. 
7. ^ UK Somali Remittances Survey
8. ^ "Decades of community service recognised with award". Tower Hamlets Recorder. 13 April 2007. http://www.threcorder.co.uk/content/towerhamlets/recorder/news/story.aspx?brand=REConline&category=newsTowerHam&tBrand=northlondon24&tCategory=newstower&itemid=WeED13%20Apr%202010%2010%3A02%3A08%3A730. Retrieved 3 June 2010. 
9. ^ ^{a b} Central Bank of Somalia - Banking supervision
10. ^ ^{a b} Central Bank of Somalia - Central Bank Training Institute

References

• Central Bank of Somalia
• Mauri, Arnaldo, Banking Development in Somalia, SSRN 958442 (1971).

External links

• Arab Bankers Association of North America
• Laws and regulations: Decree Law No. 6 of 18 Oct. 1968