Currency Board For Somalia

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Any administration that implements this arrangement i.e currency board will not fall. You would solve inflation problem forever and economic activity would take off like a rocket.

 

The quantity of local currency/shilling in circulation to be determined by a free-market mechanism in a currency board.

 

So, just what is a currency board? Operating under currency board rules, a monetary authority issues notes and coins convertible on demand into a foreign anchor currency at a fixed exchange rate. As reserves, a currency board holds low-risk, interest-bearing bonds denominated in the anchor currency. The reserve levels are set by law and are equal to 100 percent, or slightly more, of its monetary liabilities. A currency board generates profits (seigniorage) from the difference between the interest it earns on its reserve assets and the expense of maintaining its liabilities. By design, a currency board has no discretionary monetary powers and cannot engage in the fiduciary issue of money. Its operations are passive, and automatic. The sole function of a currency board is to exchange the domestic currency it issues for an anchor currency at a fixed rate. Consequently, the quantity of domestic currency in circulation is determined solely by market forces, namely the demand for domestic currency.

 

There have been many currency boards, and none have failed. By design, they can’t be broken. Even the currency board designed by John Maynard Keynes, which was installed in North Russia, during the civil war, worked like a charm.