Review of Behavioral Economics > Vol 3 > Issue 3-4

Positively Valued Fiat Money after the Sovereign Disappears: The Case of Somalia

William J. Luther, Kenyon College, USA, lutherw@kenyon.edu , Lawrence H. White, George Mason University, USA
 
Suggested Citation
William J. Luther and Lawrence H. White (2016), "Positively Valued Fiat Money after the Sovereign Disappears: The Case of Somalia", Review of Behavioral Economics: Vol. 3: No. 3-4, pp 311-334. http://dx.doi.org/10.1561/105.00000050

Publication Date: 23 Dec 2016
© 2016 W. J. Luther and L. H. White
 
Subjects
 
Keywords
JEL Codes: B52B53C71C73D83D85E41E42
BeliefFocal pointFinancial marketsInertiaLearningMonetary regimeMonetary standardMoneyPolitical economySearchSelf-fulfilling prophecySomaliaSomali shilling
 

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In this article:
1. Introduction 
2. Continued Circulation in Stateless Somalia 
3. A Theoretical Explanation 
4. Historical Acceptance in Somalia: 1960–1991 
5. Conclusion 
References 

Abstract

The case of the Somali shilling defies the historical view that sovereign powers (i.e., legal tender status, public receivability) are necessary to explain the acceptance of fiat money at a positive value. Following the Somali state’s collapse in 1991, irredeemable paper shillings have continued to circulate at a positive value. Acceptance under statelessness is explained by a history that made continued acceptance a focal point among self-fulfilling strategies. Our explanation is consistent with an extended Kiyotaki-Wright model of fiat money. Although sovereign power may be necessary to launch a fiat money in practice, we maintain that it is not necessary for its survival.

DOI:10.1561/105.00000050