Somaliland financial recognition could precede political recognition, Deputy Governor Hamse Abdirahman Khaire says, outlining reforms on reserves, currency, banking and digital payments
Somaliland’s campaign for international recognition is unfolding on two fronts: diplomacy and finance.
While the administration continues to seek wider political, officials at the Bank of Somaliland are pursuing a parallel objective — building a financial system credible enough to connect more deeply with regional and international institutions.
In an exclusive in-person interview with Abdul Rafay Afzal, the Editor-in-Chief of The Advocate Post, Deputy Governor Hamse Abdirahman Khaire said Somaliland’s financial credibility should not be viewed simply as a consequence of political recognition. It can, he argued, develop through practical institutional relationships, including correspondent banking, central-bank cooperation, interoperable payment systems and stronger safeguards against money laundering and terrorist financing.
“Political recognition and financial credibility are related, but they are not necessarily the same process,” Khaire said. “Our objective is to make those institutions increasingly credible, transparent, internationally compatible and professionally regulated.”
His comments outline an ambitious reform agenda extending from foreign-exchange reserves and dollarisation to currency modernization, digital payments, deposit protection, insurance regulation and the separation of commercial banking from the central bank.
The broader objective is to make Somaliland’s financial system more predictable and resilient — and, eventually, more accessible to institutions that currently face political and regulatory barriers to engaging with Hargeisa.
Building financial credibility before political recognition
Khaire said Somaliland should measure progress not only by formal diplomatic milestones but also by the strength of its financial institutions.
By 2028, he said, the public should expect progress in three particularly important areas: expanded correspondent-banking relationships, greater international connectivity for payment systems and stronger cooperation with regional and international financial authorities.
“Financial recognition can develop through practical relationships,” he said, citing correspondent banking, bilateral central-bank cooperation, stronger anti-money-laundering and counter-terrorist-financing systems and interoperable payment infrastructure.
The approach reflects a broader reality confronting jurisdictions with limited international recognition: access to global finance depends not only on political status but also on whether banks, regulators and payment networks can satisfy increasingly demanding compliance standards.
For Somaliland, that makes institutional credibility a strategic asset in its own right.
Reserves: transparency before headline figures
One of the most sensitive questions concerns the size of Somaliland’s foreign-exchange reserves.
Khaire declined to provide an unaudited figure, emphasizing that the Bank must distinguish between foreign currency that constitutes its own usable reserves and funds belonging to the government or held for specific government purposes.
“The question of reserves must be answered with precision,” he said.
He said the Bank is working toward a clearer reserve-reporting framework that would identify ownership, composition, custodianship, liquidity and potential encumbrances.
The distinction matters because a headline reserve figure can give a misleading impression of a central bank’s ability to respond to external shocks if some of the funds are unavailable for monetary operations.
“Reserve adequacy is not simply about having a large dollar figure,” Khaire said. “It is about usable, liquid and properly governed reserves relative to the country’s external needs.”
He also expressed support for a more formal reserve-adequacy framework, potentially including a minimum strategic threshold and a long-term target for import coverage.
But he argued that reserve accumulation cannot rest solely on the central bank.
It should instead become part of national macroeconomic policy, supported by stronger exports, disciplined fiscal management, improved foreign-exchange administration, financial-sector development and greater confidence in formal financial institutions.
Dollarization and the future of the Somaliland shilling
The widespread use of the U.S. dollar alongside the Somaliland shilling presents another challenge.
Khaire rejected an abrupt attempt to eliminate dollar usage, warning that such a move could undermine confidence and disrupt economic activity.
Instead, he advocated a gradual, market-oriented strategy in which the Somaliland shilling becomes increasingly important in domestic economic activity.
“The long-term objective is a stronger shilling — not a forced transition,” he said.
The shilling, he argued, should increasingly be used for government payments, taxation, domestic transactions and other local economic activity, while the dollar would continue to have a legitimate role in international commerce, remittances, savings and large transactions.
The central question, therefore, is less whether Somaliland can prohibit dollarization than whether it can create conditions under which households and businesses voluntarily have greater confidence in the local currency.
“People will use the shilling more when they are confident that it will retain value, can be exchanged easily and is supported by a reliable financial system,” Khaire said.
A more transparent exchange-rate framework
Khaire also called for clearer public communication about Somaliland’s exchange-rate policy.
He cautioned against treating the published exchange rate as merely an administrative figure, saying the Bank must consider market conditions, inflation, reserves and broader economic developments while seeking to limit excessive volatility.
Businesses, he said, need predictability.
That requires better statistical information and clearer communication with importers, exporters, commercial banks and investors about the factors influencing exchange-rate decisions.
The challenge is to provide greater transparency without constraining the central bank’s ability to respond to disorderly market conditions.
Central-bank independence and government financing
The interview also touched on one of the most consequential questions for monetary stability: whether the central bank can resist government policies that threaten reserves, inflation or confidence in the currency.
Khaire said a credible central bank must be capable of providing independent professional advice while maintaining constructive relations with the government.
“Central-bank independence does not mean institutional confrontation with the Government,” he said. “It means professional discipline and clear responsibilities.”
He called for a formal framework for fiscal-monetary coordination, designed to prevent government financing decisions from undermining price stability or reserve adequacy.
Such a framework could become particularly important as Somaliland seeks to expand public investment while simultaneously strengthening monetary credibility.
The $70.8 million question
The Bank’s 2025 Annual Report cited $70.8 million in foreign exchange supplied to khat importers, a figure that raises questions about how scarce foreign currency is allocated.
Khaire said foreign-exchange allocation should be understood within the wider structure of Somaliland’s economy and emphasized that the Bank should not determine access according to subjective preferences.
Still, he acknowledged the underlying policy issue.
“When foreign exchange is scarce, Somaliland must continually examine whether the allocation of foreign currency supports the country’s long-term economic interests,” he said.
That, he argued, requires greater transparency and stronger market mechanisms while ensuring that essential sectors such as food, medicine, energy and productive exports can obtain foreign currency.
The issue illustrates a recurring tension for monetary authorities in developing economies: foreign exchange must simultaneously support current consumption, essential imports and longer-term productive investment.
Currency reform under consideration
The Bank is also studying the future design of Somaliland’s currency.
Khaire acknowledged that five-digit denominations create practical difficulties for cash transactions, accounting and payment systems. But he cautioned against equating denomination with monetary strength.
Any decision involving new denominations, coins, polymer notes or redenomination, he said, should follow technical studies, cost-benefit assessments, security considerations and an evaluation of broader monetary conditions.
The Bank must also manage public expectations carefully.
“A currency-modernisation programme should be presented as institutional and technological modernisation, not as an admission of monetary failure,” he said.
A commemorative currency issue?
Khaire also signaled openness to an idea that could combine monetary policy with national symbolism: a commemorative banknote or coin marking Somaliland’s history and monetary sovereignty.
He described the proposal as worthy of serious consideration, particularly around Somaliland’s 35th anniversary.
Such an issue could incorporate modern security technology alongside themes from Somaliland’s history, culture and constitutional development.
But Khaire emphasized that the initiative would have to be economically and technically justified.
If pursued, he said, the design process could involve historians, artists, security specialists and members of the public.
Digital payments and the shilling
Somaliland’s expanding digital-payment ecosystem presents both an opportunity and a policy challenge.
Khaire said digitalization itself does not automatically strengthen either the shilling or the dollar. The decisive issue is the currency in which transactions ultimately settle.
That is why interoperability is central to the Bank’s strategy.
Somaliland needs payment infrastructure capable of allowing banks and licensed mobile-money providers to exchange funds securely and efficiently, he said.
The planned national switch and instant-payment infrastructure are intended to support that transition.
Khaire said consumers should eventually be able to move money conveniently between regulated institutions and conduct permitted transactions in both dollars and Somaliland shillings.
A central-bank digital currency, however, is not an immediate priority.
“We should not introduce technology simply because it is fashionable,” he said.
For now, the Bank intends to concentrate on strengthening existing electronic-money and payment infrastructure. A digital shilling, he said, can remain an area for research as technology and regulation evolve.
SWIFT, correspondent banks and the politics of access
Somaliland’s limited international political status remains a significant obstacle to deeper integration into global finance.
But Khaire said the Bank should focus first on meeting the technical and compliance requirements expected by international financial institutions rather than treating access to SWIFT as a symbolic political objective.
That means strengthening anti-money-laundering and counter-terrorist-financing supervision, beneficial-ownership transparency, sanctions screening, foreign-exchange oversight, reporting systems and enforcement.
The Bank’s handling of counterfeit-currency seizures, he said, also underscores the importance of robust financial controls.
“Our strategy is therefore to build a system that international financial institutions can trust and then pursue connectivity from a position of institutional strength,” Khaire said.
The strategy effectively reverses the conventional sequence: rather than waiting for political recognition to unlock financial integration, Somaliland wants to demonstrate financial compatibility first.
Preparing for bank failures
Financial credibility also depends on what happens when institutions fail.
Khaire said the Bank is committed to strengthening Somaliland’s framework for deposit protection, bank resolution and customer protection.
A functioning system should make clear which deposits are protected, the coverage limit, how the protection fund is financed, how failed institutions are resolved and how quickly eligible customers can receive compensation.
The challenge is complicated by Somaliland’s hybrid financial ecosystem, which includes commercial banks, mobile-money providers and remittance companies.
“The public should not have to discover the rules after a financial institution fails,” Khaire said. “The rules need to be established, communicated and tested beforehand.”
Coordinating banking and insurance regulation
The emergence of the Somaliland National Insurance Authority creates another opportunity to broaden financial-sector regulation.
Khaire supports a formal coordination mechanism between the central bank and insurance regulator while maintaining clear institutional boundaries.
Potential areas of cooperation include AML/CFT, regulatory information sharing, payment systems, investment of insurance funds, bancassurance, digital premium and claims payments, and crisis management.
He also pointed to the potential for Sharia-compliant investment instruments that could allow insurance and takaful funds to participate in Somaliland’s productive economy, subject to appropriate solvency and risk-management requirements.
“Cooperation between regulators without compromising regulatory independence” should be the guiding principle, he said.
Separating commercial banking from the central bank
Perhaps the most consequential institutional reform discussed in the interview is the proposed separation of commercial banking activities from the central bank’s regulatory and monetary functions.
Khaire endorsed completing the process in a disciplined and transparent manner.
“A central bank should not simultaneously be the regulator, monetary authority and a commercial competitor to the institutions it supervises,” he said.
He said the reform program involving KPMG and AlHuda is intended to address that institutional overlap.
The transition will require decisions involving assets, liabilities, government accounts, employees, technology systems and governance arrangements.
Until the separation is complete, Khaire said, strong internal controls and institutional firewalls will be necessary to reduce potential conflicts of interest.
The intended outcome is a stronger regulator and a more level playing field for commercial banks.
Measuring success by access to productive finance
For Khaire, however, the ultimate test of reform is not institutional restructuring itself. It is whether Somaliland’s financial system begins serving more of the real economy.
He cited a survey figure reported by The Advocate Post indicating that only 9 percent of respondents had obtained a loan, describing limited access to formal credit as one of the financial sector’s most significant weaknesses.
By 2028, he said, the Bank should be judged against several measurable indicators: greater financial inclusion, increased productive lending to small and medium-sized enterprises, agriculture, livestock and manufacturing; stronger reserve adequacy; greater confidence in the shilling; improved payment-system interoperability; and stronger consumer protection.
But if he had to choose one overarching benchmark, Khaire said it would be access to productive finance.
“A financial system should ultimately serve the real economy,” he said.
The objective, he explained, is to channel more savings and remittances into businesses, agriculture, livestock, manufacturing and SMEs while maintaining monetary and financial stability.
That may ultimately prove the most practical measure of Somaliland’s financial ambitions.
Political recognition remains a diplomatic question, dependent on governments and international institutions. Financial credibility is different. It can be built incrementally — through audits, regulations, payment infrastructure, reserve management, institutional independence and the confidence of ordinary depositors and businesses.
For Somaliland, that distinction may be strategically important.
If financial institutions become sufficiently transparent, regulated and connected to international standards, financial recognition could begin to move ahead of formal political recognition — giving the territory another route toward deeper integration with the global economy.
