12 ms·

Orphaned currency: the odd case of Somali shillings (2013)

72 points by rargulati 8y ago

germainelong 8y ago
Any article about economy that mentions "Keynes" is not worth the bytes it is being stored on.
rbobby 8y ago
Thus proving that the closer you look at money the weirder it gets. A bit like religion in a way. Which, I suppose, is unremarkable given that belief/faith plays such a significant role in both.
- vinceguidry 8y ago
  The intrinsic value of money is that it prevents you from having to barter. Religion works the same way, providing a shared culture that allows people to relax with the understanding that there's an implicit contract. The alternative to money is barter, the alternative to faith is never being able to trust someone. Undermining faith in the system through heresy or counterfeit is considered to be much worse than individual acts of violence, and so it tends to be punished more harshly. The real value of money / faith is in the shared belief. Not that weird or difficult to understand when you think hard enough about it. In other words, while individuals hold money and beliefs, faith systems like money are themselves social goods, held by the entire society.
qwerty456127 8y ago
AFAIK historically people could use shells like money although there was no central bank, no taxes and some random people could occasionally "issue" new with the help of the sea. Any token that is reasonably convenient to be used as money and is not too easy to issue can be used as money. The idea that taxation is what makes them valuable looks pretty bizarre to me.
- AnimalMuppet 8y ago
  If there's a head tax of three quatloos per year, then I have to get three quatloos every year. So does everybody else. That creates a value for quatloos, no matter how useless they otherwise are. On the other hand, if it's an income tax, something like "How many quatloos did you make this year? Send in one-third of them", and I didn't make any quatloos because I use some other kind of money, well, I owe exactly zero quatloos (until the government figures out the loophole and, worse, fixes the exchange rate).
munk-a 8y ago
This article is interesting... but confusing. It seems to be someone's organic journey to how we don't need to be on the gold standard anymore. Currency has always existed based on trust, at one point we thought that gold is really trustworthy (for some weird reason) then we thought that governments were really trustworthy (again, wat?) eventually we all settled on the idea that not all governments were trustworthy, but that the US government was _super_ trustworthy (REALLY WAT?). Currency has value because we say it has value, and people will tend to default to the status quo. Your money is basically worth something because everyone is too lazy to actively consider it to be worthless. If the society collapses, go and see if that farmer really wants to sell you a gallon of milk for a piece of paper - or even for an exquisitely printed bar of gold that you purchased because you were quite convinced the coming Armageddon would make all the silly paper money worthless. (As an aside, I find one of the least believable parts of Fallout to be the fact that there is soda in the world and the bottle caps of that soda are a currency)
- sokoloff 8y ago
  The trust is part psychology (if other people are willing to take that money, you're more willing to take it) and part based on the military security and taxation authority of the US federal government (what "full faith and credit" ultimately means). It's not "trust" in the way most people trust their grandmother.
- AnimalMuppet 8y ago
  Gold was considered trustworthy because it was rare. The earth's crust only contains a small amount of it. The attack that people were worried about was the government creating a whole bunch of currency and insisting that it was all valuable. They couldn't do that with gold, so gold was trusted.
  - bobthepanda 8y ago
    Gold also has properties that make it hard to fake, if you know what you're looking for.
    - 8y ago
Animats 8y ago
Confederate money is now selling for above face value on eBay. When I was a kid in Virginia, we had Confederate money as play money.
roywiggins 8y ago
I suppose one nice thing about an orphan currency is that other than really good counterfeits, nobody is around to inflate it by printing more.
- gpvos 8y ago
  > Counterfeit notes and contingent redemption > ... several new issues of counterfeit notes joined them. These counterfeit 1000 and 500 shilling banknotes were created by warlords and businessmen subsequent to the country's collapse. ... Even without these imperfections, fake banknotes would have been instantly recognizable to anyone—they would have been crisp and clean relative to the limp and dirty legacy issue. > Despite being easily differentiable, Somalians willingly accepted counterfeit 1000 and 500 shilling notes.
  - gus_massa 8y ago
    I agree with the GP that the useful part is that they are difficult to counterfeit, not impossible, just difficult enough. From https://en.wikipedia.org/wiki/Somali_shilling#Modern_history https://en.wikipedia.org/wiki/Somali_shilling#Modern_history > Competition for seigniorage drove the value of the money down to about $0.04 per ShSo (1000) note, approximately the commodity cost. Consumers also refused to accept bills larger than the 1991 denominations, which helped to stop the devaluation from spiraling further. The pre-1991 notes and the subsequent forgeries were treated as the same currency. It took large bundles to make cash purchases, and the United States dollar was often used for larger transactions. Also, a 1000 Somaliland shilling bill is approximately US$2, so the producer of the counterfeit bills don't gain a lot.
scotty79 8y ago
> According to chartal theory, the requirement that people pay taxes with government-issued bits of paper is what drives the positive value of these bits. This is an actual theory? I thought it was just something people made up for the purpose of "proving" that bitcoin is worthless in internet discussions. It just sounds so silly.
- munk-a 8y ago
  It is a theory, but it's a pretty silly one. Most discussions of Chartalism usually end up being excuses for colonialism. There is a lot wrong with colonization - one of those things is that subsistence farming/ranching/being alive isn't really profitable to anyone else, so requiring that taxes be paid in a currency that is rewarded for doing a job that the government wants done is a way to force people to do that job in a sneaky way that doesn't technically count as slavery. This was used extensively by GB in South Africa[1] to make sure there was enough labour to run mining operations. [1] https://en.wikipedia.org/wiki/Hut_tax https://en.wikipedia.org/wiki/Hut_tax though this wikipedia article is incredibly whitewashed.
robocat 8y ago
Title should say (2013). I would like the article better if it mentioned the difference between money as a store of value (my risk if I have a lot of it) versus as a medium of transactions (risk is limited to the amount in my wallet) versus inherent worth (tradable item). The first case needs belief in some form of backing. The second doesn't. And of course we should mention using leaves as money by the Golgafrinchan people of Ark Fleet Ship B.
- dang 8y ago
  Year added. Thanks!
bane 8y ago
I collect world and some historic currency as a small side hobby and have maybe over a thousand pieces. Most of them are worthless in value but many of them are sources of interesting analysis about the societies that produced them. What I find particularly interesting is the notion that most governments have maybe around a dozen different pieces of currency they issue, and have to decide what goes on them. Thus it's an interesting insight into the values the government wishes to promote to users of the money. For example, money in many developing nations shows images of large infrastructure projects to demonstrate and communicate some kind of progress and thus justify to the the citizens and users of the money that they should stay in a position of power. In my collection are several orphaned currencies no longer used in any capacity like Japanese occupation Philippine Pesos that look almost exactly like U.S. dollars from the era. Why? I don't know all of the reasons, but it's interesting to contemplate how quickly after occupation these were produced, the decision to use Pesos instead of Dollars or Yen or some other alternative. [1] Another interesting currency I have is a coin known as a Maria Theresa Thaler (MTT) [2] -- and for historic reasons that will become apparent, probably a counterfit, but was still traded. There's a long and interesting history about the coin, but the 1780 minting (or rather coins with the year of 1780 on them) became an important currency throughout many parts of the world long after the Austrian-Hungarian Empire was no longer in existence. In some areas, Merchants would not accept any other currency than 1780 MTTs and in a few areas is still used. However, due to this popularity it was often copied, counterfeited or otherwise minted by various groups and governments long after 1780. You can still by proof coins from the Austrian Mint to this day. 1 - https://en.wikipedia.org/wiki/Japanese_government-issued_Philippine_peso https://en.wikipedia.org/wiki/Japanese_government-issued_Phi... 2 - https://en.wikipedia.org/wiki/Maria_Theresa_thaler https://en.wikipedia.org/wiki/Maria_Theresa_thaler
- bobthepanda 8y ago
  As far as the Phillipines is concerned, the Peso was actually in use during the US colonial era as well. Practically speaking, before the digital age, it was impractical to ship currency across the ocean just to provide the money supply for a colony or another country; better to have the local authorities manage it locally so that they can respond to local economic situations in a timely fashion. While by 1939 speed of travel is no longer an issue, reliability of wartime travel is, so the Japanese have to rely on the local mint to issue currency.
sparkling 8y ago
Other interesting currencies to look into: - The new Belarusian ruble also known as the "third ruble" which was introduced in 2016. The first and second generation ruble never had any coins; but with the third generation they introduced denominations <1 rubel, subdividing 1 rubel into 100 kapeks and minting kapek coins despite their very low value (1 kapek being ~0.0046 USD) - In 2014, the defacto state of Transnistria (official the Pridnestrovian Moldavian Republic) introduced transnistrian ruble coins made out of plastic.
vinceguidry 8y ago
I propose a different explanation for the continued circulation of shillings after the central bank collapsed. Social need. Since there was no available currency of worth for Somalians to use as a medium of exchange, they simply kept using shillings. Had there already been an alternative currency, say euros or dollars, shillings would have reduced in value and most trades of value would be going through the legitimate currency. Rather than government backing or historical precedent, simple supply and demand propped up the shilling. Currency, even fiat currency, is not intrinsically worthless, it's useful on its own merits as providing a convenient alternative to bartering. This also explains why the counterfeits were accepted, people simply saw the warlords as providing liquidity that the government couldn't. Once a government steps in with an alternative, the existing tender will slowly stop circulating. Or perhaps a mobile network may get froggy and offer cheap connectivity along with a payments network. Currency is like any other asset class.
shoo 8y ago
Previously: 2017 HN discussion of similar link about the Somali shilling from same blog: https://news.ycombinator.com/item?id=14414272 https://news.ycombinator.com/item?id=14414272 I am delighted by this as a real world physical example of a proof-of-work currency.
benj111 8y ago
>The discount had hit its widest point as the paper (greenback) traded at 38 cents on the gold dollar. The above is regarding the southern US Greenback, during the civil war. I'm not convinced its measuring what its supposed to be measuring though. I assume the gold dollar is a Yankee dollar, so this is also measuring the relative values of waring currencies, rather than to some 3rd party standard. Its unclear to me if a gold dollar is actually physically gold, which would ameliorate most of my concern, but theres still the risk of debasement, getting stuck with coin from the losing side etc.
- MrRadar 8y ago
  Keep in mind at the time that the world was on the gold standard so the value of every currency was measured against gold (and all currencies were, in theory, convertible directly to gold). The Gold Dollar[1] was an actual coin (made of an alloy of 90% gold and 10% copper) in circulation at the time so it was literally impossible for it to be worth less than its face value under the gold standard. In contrast Greenbacks (paper money issued by the US government) were only a promise to provide gold in exchange for the note. The value of the greenback relative to hard currency would have effectively been a measurement of how much faith people would have had that the government could make good on that promise. During the civil war, when the government was short on cash due to half their tax base leaving and the enormous costs of fighting the war, it's unlikely they would have been able to redeem all of those Greenbacks for hard currency (and in fact that was the whole reason they printed them: they didn't have enough hard currency to mint new coins) so under those conditions it's only rational that Greenbacks would trade at a discount. [1] https://en.wikipedia.org/wiki/Gold_dollar https://en.wikipedia.org/wiki/Gold_dollar
  - benj111 8y ago
    'gold' coins can and were debased. So theres a legitimate fear of nations minting coins with lower gold content but the same face value. Devaluing your own coin with it (if people cant differentiate). Also if I'm a European cotton trader, do I want to be left with north US currency if the south won, and visa versa? So yes the gold itself has a value, but as the article itself shows, currency without backing has value. With that in mind, I would prefer to see a comparison to an independent currency.
aarong11 8y ago
Counterfeits are only counterfeit when you take them to the bank. As long as you can pass them on to someone else, they still have value. Don't quote me on this, but I remember reading a good example. In the U.S. Waiters and waitresses frequently tip (and willingly accept) counterfeit notes from others who work in the industry. At the next opportunity, they pass them on by doing the same. If anyone can find a good citation for this please feel free to add.

72 points by rargulati 8y ago

Any article about economy that mentions "Keynes" is not worth the bytes it is being stored on.

Thus proving that the closer you look at money the weirder it gets. A bit like religion in a way. Which, I suppose, is unremarkable given that belief/faith plays such a significant role in both.

vinceguidry 8y ago
The intrinsic value of money is that it prevents you from having to barter. Religion works the same way, providing a shared culture that allows people to relax with the understanding that there's an implicit contract. The alternative to money is barter, the alternative to faith is never being able to trust someone. Undermining faith in the system through heresy or counterfeit is considered to be much worse than individual acts of violence, and so it tends to be punished more harshly. The real value of money / faith is in the shared belief. Not that weird or difficult to understand when you think hard enough about it. In other words, while individuals hold money and beliefs, faith systems like money are themselves social goods, held by the entire society.

qwerty456127 8y ago

AFAIK historically people could use shells like money although there was no central bank, no taxes and some random people could occasionally "issue" new with the help of the sea. Any token that is reasonably convenient to be used as money and is not too easy to issue can be used as money. The idea that taxation is what makes them valuable looks pretty bizarre to me.

AnimalMuppet 8y ago
If there's a head tax of three quatloos per year, then I have to get three quatloos every year. So does everybody else. That creates a value for quatloos, no matter how useless they otherwise are. On the other hand, if it's an income tax, something like "How many quatloos did you make this year? Send in one-third of them", and I didn't make any quatloos because I use some other kind of money, well, I owe exactly zero quatloos (until the government figures out the loophole and, worse, fixes the exchange rate).

munk-a 8y ago

This article is interesting... but confusing. It seems to be someone's organic journey to how we don't need to be on the gold standard anymore. Currency has always existed based on trust, at one point we thought that gold is really trustworthy (for some weird reason) then we thought that governments were really trustworthy (again, wat?) eventually we all settled on the idea that not all governments were trustworthy, but that the US government was _super_ trustworthy (REALLY WAT?). Currency has value because we say it has value, and people will tend to default to the status quo. Your money is basically worth something because everyone is too lazy to actively consider it to be worthless. If the society collapses, go and see if that farmer really wants to sell you a gallon of milk for a piece of paper - or even for an exquisitely printed bar of gold that you purchased because you were quite convinced the coming Armageddon would make all the silly paper money worthless. (As an aside, I find one of the least believable parts of Fallout to be the fact that there is soda in the world and the bottle caps of that soda are a currency)

sokoloff 8y ago
The trust is part psychology (if other people are willing to take that money, you're more willing to take it) and part based on the military security and taxation authority of the US federal government (what "full faith and credit" ultimately means). It's not "trust" in the way most people trust their grandmother.
AnimalMuppet 8y ago
Gold was considered trustworthy because it was rare. The earth's crust only contains a small amount of it. The attack that people were worried about was the government creating a whole bunch of currency and insisting that it was all valuable. They couldn't do that with gold, so gold was trusted.
- bobthepanda 8y ago
  Gold also has properties that make it hard to fake, if you know what you're looking for.
  - 8y ago

Animats 8y ago

Confederate money is now selling for above face value on eBay. When I was a kid in Virginia, we had Confederate money as play money.

roywiggins 8y ago

I suppose one nice thing about an orphan currency is that other than really good counterfeits, nobody is around to inflate it by printing more.

gpvos 8y ago
> Counterfeit notes and contingent redemption > ... several new issues of counterfeit notes joined them. These counterfeit 1000 and 500 shilling banknotes were created by warlords and businessmen subsequent to the country's collapse. ... Even without these imperfections, fake banknotes would have been instantly recognizable to anyone—they would have been crisp and clean relative to the limp and dirty legacy issue. > Despite being easily differentiable, Somalians willingly accepted counterfeit 1000 and 500 shilling notes.
- gus_massa 8y ago
  I agree with the GP that the useful part is that they are difficult to counterfeit, not impossible, just difficult enough. From https://en.wikipedia.org/wiki/Somali_shilling#Modern_history https://en.wikipedia.org/wiki/Somali_shilling#Modern_history > Competition for seigniorage drove the value of the money down to about $0.04 per ShSo (1000) note, approximately the commodity cost. Consumers also refused to accept bills larger than the 1991 denominations, which helped to stop the devaluation from spiraling further. The pre-1991 notes and the subsequent forgeries were treated as the same currency. It took large bundles to make cash purchases, and the United States dollar was often used for larger transactions. Also, a 1000 Somaliland shilling bill is approximately US$2, so the producer of the counterfeit bills don't gain a lot.

scotty79 8y ago

> According to chartal theory, the requirement that people pay taxes with government-issued bits of paper is what drives the positive value of these bits. This is an actual theory? I thought it was just something people made up for the purpose of "proving" that bitcoin is worthless in internet discussions. It just sounds so silly.

munk-a 8y ago
It is a theory, but it's a pretty silly one. Most discussions of Chartalism usually end up being excuses for colonialism. There is a lot wrong with colonization - one of those things is that subsistence farming/ranching/being alive isn't really profitable to anyone else, so requiring that taxes be paid in a currency that is rewarded for doing a job that the government wants done is a way to force people to do that job in a sneaky way that doesn't technically count as slavery. This was used extensively by GB in South Africa[1] to make sure there was enough labour to run mining operations. [1] https://en.wikipedia.org/wiki/Hut_tax https://en.wikipedia.org/wiki/Hut_tax though this wikipedia article is incredibly whitewashed.

robocat 8y ago

Title should say (2013). I would like the article better if it mentioned the difference between money as a store of value (my risk if I have a lot of it) versus as a medium of transactions (risk is limited to the amount in my wallet) versus inherent worth (tradable item). The first case needs belief in some form of backing. The second doesn't. And of course we should mention using leaves as money by the Golgafrinchan people of Ark Fleet Ship B.

dang 8y ago
Year added. Thanks!

bane 8y ago

I collect world and some historic currency as a small side hobby and have maybe over a thousand pieces. Most of them are worthless in value but many of them are sources of interesting analysis about the societies that produced them. What I find particularly interesting is the notion that most governments have maybe around a dozen different pieces of currency they issue, and have to decide what goes on them. Thus it's an interesting insight into the values the government wishes to promote to users of the money. For example, money in many developing nations shows images of large infrastructure projects to demonstrate and communicate some kind of progress and thus justify to the the citizens and users of the money that they should stay in a position of power. In my collection are several orphaned currencies no longer used in any capacity like Japanese occupation Philippine Pesos that look almost exactly like U.S. dollars from the era. Why? I don't know all of the reasons, but it's interesting to contemplate how quickly after occupation these were produced, the decision to use Pesos instead of Dollars or Yen or some other alternative. [1] Another interesting currency I have is a coin known as a Maria Theresa Thaler (MTT) [2] -- and for historic reasons that will become apparent, probably a counterfit, but was still traded. There's a long and interesting history about the coin, but the 1780 minting (or rather coins with the year of 1780 on them) became an important currency throughout many parts of the world long after the Austrian-Hungarian Empire was no longer in existence. In some areas, Merchants would not accept any other currency than 1780 MTTs and in a few areas is still used. However, due to this popularity it was often copied, counterfeited or otherwise minted by various groups and governments long after 1780. You can still by proof coins from the Austrian Mint to this day. 1 - https://en.wikipedia.org/wiki/Japanese_government-issued_Philippine_peso https://en.wikipedia.org/wiki/Japanese_government-issued_Phi... 2 - https://en.wikipedia.org/wiki/Maria_Theresa_thaler https://en.wikipedia.org/wiki/Maria_Theresa_thaler

bobthepanda 8y ago
As far as the Phillipines is concerned, the Peso was actually in use during the US colonial era as well. Practically speaking, before the digital age, it was impractical to ship currency across the ocean just to provide the money supply for a colony or another country; better to have the local authorities manage it locally so that they can respond to local economic situations in a timely fashion. While by 1939 speed of travel is no longer an issue, reliability of wartime travel is, so the Japanese have to rely on the local mint to issue currency.

sparkling 8y ago

Other interesting currencies to look into: - The new Belarusian ruble also known as the "third ruble" which was introduced in 2016. The first and second generation ruble never had any coins; but with the third generation they introduced denominations <1 rubel, subdividing 1 rubel into 100 kapeks and minting kapek coins despite their very low value (1 kapek being ~0.0046 USD) - In 2014, the defacto state of Transnistria (official the Pridnestrovian Moldavian Republic) introduced transnistrian ruble coins made out of plastic.

vinceguidry 8y ago

I propose a different explanation for the continued circulation of shillings after the central bank collapsed. Social need. Since there was no available currency of worth for Somalians to use as a medium of exchange, they simply kept using shillings. Had there already been an alternative currency, say euros or dollars, shillings would have reduced in value and most trades of value would be going through the legitimate currency. Rather than government backing or historical precedent, simple supply and demand propped up the shilling. Currency, even fiat currency, is not intrinsically worthless, it's useful on its own merits as providing a convenient alternative to bartering. This also explains why the counterfeits were accepted, people simply saw the warlords as providing liquidity that the government couldn't. Once a government steps in with an alternative, the existing tender will slowly stop circulating. Or perhaps a mobile network may get froggy and offer cheap connectivity along with a payments network. Currency is like any other asset class.

shoo 8y ago

Previously: 2017 HN discussion of similar link about the Somali shilling from same blog: https://news.ycombinator.com/item?id=14414272 https://news.ycombinator.com/item?id=14414272 I am delighted by this as a real world physical example of a proof-of-work currency.

benj111 8y ago

>The discount had hit its widest point as the paper (greenback) traded at 38 cents on the gold dollar. The above is regarding the southern US Greenback, during the civil war. I'm not convinced its measuring what its supposed to be measuring though. I assume the gold dollar is a Yankee dollar, so this is also measuring the relative values of waring currencies, rather than to some 3rd party standard. Its unclear to me if a gold dollar is actually physically gold, which would ameliorate most of my concern, but theres still the risk of debasement, getting stuck with coin from the losing side etc.

MrRadar 8y ago
Keep in mind at the time that the world was on the gold standard so the value of every currency was measured against gold (and all currencies were, in theory, convertible directly to gold). The Gold Dollar[1] was an actual coin (made of an alloy of 90% gold and 10% copper) in circulation at the time so it was literally impossible for it to be worth less than its face value under the gold standard. In contrast Greenbacks (paper money issued by the US government) were only a promise to provide gold in exchange for the note. The value of the greenback relative to hard currency would have effectively been a measurement of how much faith people would have had that the government could make good on that promise. During the civil war, when the government was short on cash due to half their tax base leaving and the enormous costs of fighting the war, it's unlikely they would have been able to redeem all of those Greenbacks for hard currency (and in fact that was the whole reason they printed them: they didn't have enough hard currency to mint new coins) so under those conditions it's only rational that Greenbacks would trade at a discount. [1] https://en.wikipedia.org/wiki/Gold_dollar https://en.wikipedia.org/wiki/Gold_dollar
- benj111 8y ago
  'gold' coins can and were debased. So theres a legitimate fear of nations minting coins with lower gold content but the same face value. Devaluing your own coin with it (if people cant differentiate). Also if I'm a European cotton trader, do I want to be left with north US currency if the south won, and visa versa? So yes the gold itself has a value, but as the article itself shows, currency without backing has value. With that in mind, I would prefer to see a comparison to an independent currency.

aarong11 8y ago

Counterfeits are only counterfeit when you take them to the bank. As long as you can pass them on to someone else, they still have value. Don't quote me on this, but I remember reading a good example. In the U.S. Waiters and waitresses frequently tip (and willingly accept) counterfeit notes from others who work in the industry. At the next opportunity, they pass them on by doing the same. If anyone can find a good citation for this please feel free to add.