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http://ssrn.com/abstract=1801563
 
 

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


William J. Luther


Kenyon College

Lawrence H. White


George Mason University - Department of Economics

April 2, 2011

GMU Working Paper in Economics No. 11-14

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.

Number of Pages in PDF File: 34

Keywords: Belief, Focal Point, Inertia, Learning, Monetary Regime, Monetary Standard, Money, Search, Self-fulfilling Prophecy, Somalia, Somali Shilling

JEL Classification: B52, E00, E41, E42, D83, C71, C73


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Date posted: April 4, 2011 ; Last revised: June 28, 2016

Suggested Citation

Luther, William J. and White, Lawrence H., Positively Valued Fiat Money after the Sovereign Disappears: The Case of Somalia (April 2, 2011). GMU Working Paper in Economics No. 11-14. Available at SSRN: http://ssrn.com/abstract=1801563 or http://dx.doi.org/10.2139/ssrn.1801563

Contact Information

William J. Luther (Contact Author)
Kenyon College ( email )
Gambier, OH 43022
United States
HOME PAGE: http://www.wluther.com
Lawrence H. White
George Mason University - Department of Economics ( email )
4400 University Drive
Fairfax, VA 22030
United States
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