Positively Valued Fiat Money after the Sovereign Disappears: The Case of Somalia
William J. Luther
Lawrence H. White
George Mason University - Department of Economics
April 2, 2011
GMU Working Paper in Economics No. 11-14
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
Date posted: April 4, 2011 ; Last revised: June 28, 2016
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