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

34 Pages Posted: 4 Apr 2011 Last revised: 28 Jun 2016

See all articles by William J. Luther

William J. Luther

Florida Atlantic University; American Institute for Economic Research

Lawrence H. White

George Mason University - Department of Economics

Date Written: April 2, 2011

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.

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

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: https://ssrn.com/abstract=1801563 or http://dx.doi.org/10.2139/ssrn.1801563

William J. Luther (Contact Author)

Florida Atlantic University ( email )

777 Glades Road
Boca Raton, FL 33431
United States

HOME PAGE: http://www.wluther.com

American Institute for Economic Research ( email )

PO Box 1000
Great Barrington, MA 01230
United States

HOME PAGE: http://www.aier.org/staff/william-j-luther

Lawrence H. White

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

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