The effect of Dollarization on the macroeconomics development in Somalia

The effect of Dollarization on the macroeconomics development in Somalia: A study of
small-scale businesses

Executive summary
Current investigation is focus on analysing the effects of dollarization on the
macroeconomics development in Somalia. In this dollarization is an important term that happens
when a particular nation own currency loses and also usefulness as a way of exchanging due to
instability in the economic. One of the main reason a country will do this is to eliminate country
risk and also provide stable as well as secure economic and investment climate. This can be put
positive impact over the improvising the overall condition of particular country. For this,
investigator use various methods and techniques to gather reliable data and information to take
reliable outcomes. Apart from this, literature review is also undertaking that provide theoretical
analysis on the basis of specified research topic and area. Conclusion and recommendation is
also mentioned in this study that summarise entire research activities and at the same time also
provide necessary for further improvement.

Table of Contents
CHAPTER- One..............................................................................................................................4
Introduction..........................................................................................................................4
Background of the study......................................................................................................5
Chapter 2- LITERATURE REVIEW..............................................................................................8
Chapter 3- RESEARCH METHODOLOGY.................................................................................14
Data analysis..................................................................................................................................20
Limitations of the study (500)........................................................................................................23
REFLECTION...............................................................................................................................41
RECOMMENDATIONS...............................................................................................................45
CONCLUSION..............................................................................................................................48
REFERENCES..............................................................................................................................51
Books & Journal...................................................................................................................51

CHAPTER- One
Introduction
Dollarization is referring to the term for when the U.S. dollar is implemented in the addition and
instead of the domestic currency of other nation (Dollarization, 2021). Basically, it is example of
currency substitution that usually happens when a specified country’s own currency loses and its
usefulness in relation to medium of exchanges because of hyperinflation of instability as well.
As, it also includes both aspects such as benefits and costs as it results in maximising monetary
and economic stability (Patten, and Newhart, 2017). Along with this, the term dollarization
necessarily includes reduction of economic autonomy in relation to monetary policy.
Dollarization is occurring in developing nations along with a central monetary authority and
unstable economic environment as well. In this context, the main reason for dollarization is to
get the benefits of greater stability within monetary value over a domestic currency of specified
countries. On the other hand, Macroeconomics is the study of economics which involve wider
prospect such as inflation, price level, economic growth, gross domestic product, difference in
between employment and national income. It is processed as by maintaining clear emphasis
towards national output, unemployment and inflation. In addition to this, the development of
economy is mainly dependent on the macro economist development which resulted into
economic growth, international trade, fiscal rate & with prospect of micro policies it is dependent
over adequate study about education, health, micro-finance as well as many other social
programs. The report will be based on the effect of Dollarization on the macroeconomics
development in Somalia. In addition to this, it help in gaining understanding about the key
aspects of economy of Somalia includes in its citizens and government. Moreover, a deep study
is conducted in order to evaluate the influence of civil war on the country’s small and medium
sized enterprise (Stokes, 2017). Furthermore, the methods involve in the study to collect
information is elaborated in the dissertation. Data interpretation and analysis will be take place
with the help of different techniques. In the last, the report will cover research outcomes and a
reflection that is based on the learning and experienced gained by researcher throughout the
study.

Background of the study
Dollarization is defined as the adoption of foreign country’s currency as legal tender for
money transactions (Wigmore, 2021). In addition to this, it is also the holdings by residents offer
significant share of their assets, in the form of foreign currency denominated assets.
Dollarization is both official and unofficial, includes the replacement of domestic currency with
the currency of another country, mainly the US dollar. In context to official dollarization, it
includes a complete conversion from domestic currency to foreign currency, considering the
directive of government.
Dollarization makes the trade easier and mainly for the small countries within Central
America, for whom US is a major trading partner in 2001. Many of the economist’s state that it
is the best way to attain economic stability in Latin American countries (Estevez, 2020). In the
last years, the concept of dollarization has surged as the monetary policy alternatives for Latin
American countries. Dollarization promotes economic stability for short run, but institutional and
structural problems is also addressed if a dollarizing country is to attain long term economic
development and growth (Borensztein, 2021). In addition to this, a high degree of dollarization
not only influence on the performance and effectiveness of economic policy, but it also needs
adjustment within the Prudential regulations.
There were two coins which have really been working currencies named, PESA made of
copper an Indian rupee made of silver and we’re also circulating the economy of Iran, India,
Zanzibar that were at the time the main trade partners of Somalia. Moreover, the currencies that
are working in northern and southern Somali regions, mostly the Indian rupee which was used in
coastal towns of Somalia. After the entering of British colonial and in Somalia, it was the first
state recognize the Indian rupee as medium of exchange. There are various reasons behind
dollarization or the acceptance of dollar in Somalia. The first main reason is lack of peoples have
reliance on their national currency. Currency vulnerability, massive devaluation I am not
returning on steady value within the long run destroyed the confidence of people on the currency,
the citizens had left the domestic currency as they required to take a huge bundle of money when
they are going to market, they are used dollars as a medium of exchange. The second reason is
global dollarization pressure that took its place to substitute the dollar. The third reason is there
is too many inflows of dollar within the country, and one of the causes to dollar value in the
Somali market of their exchange of products and services of the world country.

Research Aim:
“The effect of Dollarization on the macroeconomics development in Somalia: A study of
small scale businesses
Research questions:
 What are the key aspects of economy of Somalia includes in its citizens and government?
 What is the effect of dollarization on the macroeconomics development in Somalia?
 What is the influence of civil war on the country’s small and medium sized enterprise?
 What is the influence of civil war has weakened the country's economy?
Research Objectives:
 To review the key aspects of economy of Somalia includes in its citizens and
government.
 To evaluate the effect of dollarization on the macroeconomics development in Somalia.
 To evaluate the influence of civil war on the country’s small and medium sized enterprise
 To analyse the influence of civil war has weakened the country's economy.
Rationale of research
The main purpose of undertaking current investigation is to explore the effects of
dollarization on the macroeconomics in Somalia. This research provides vast information
through which investigator can improvise their skills and knowledge towards the specified theme
and statement as well. Along with this, researcher also undertake current research for their
personal and professional purpose that provide them assistance in attainment of set goals and
objectives. In personal context, researcher undertake this study for improving their personal
skills and knowledge and on the other side it also beneficial for researcher in increasing their
professional skills that may aid in improving their career growth in same field. With the
assistance of this, researcher can easily attain positive ad reliable outcomes at the end of the
investigation. Along with this, one more objectives which can be is based on nature of this
research. This is because by performing this research one more benefits which can be use by
business firm is related to meeting needs and perform task in effective way.
Structure of the study
This research investigation is structured as followed:
Chapter One Introduction: This chapter has been included to provide a brief overview
of the research topic, the rational for this study and highlight the aims and objectives which this

study is based upon. The main focus of this section is to develop research aims and objectives as
overall research activities is highly based over the same and also provide authentic results.
Chapter two literature review: A critical analysis was conducted of the academic
literature, with data being sourced through a number of secondary sources. Mainly, it provides
theoretical perspective in which researcher gather data from different sources including books,
journals, articles and many more. With the assistance of this, investigator can easily gather
detailed analysis on the basis of specified research topic and area.
Chapter three research methodology: This chapter identifies the methodological
process which have been adopted throughout this investigation, as further discussions will be
conducted into what methods were used to conduct the research and why these methods were
chosen.
Chapter four Data analysis: This section of study is totally based over the collecting as
well as analysing data by using structured questionnaire as it includes various close-ended
questions asked from selected respondents. By this, investigator can gather detailed and accurate
data on the basis of specified research topic.
Chapter five Conclusion and recommendation: It is an important phase of undertaking
research as it summarise overall research activities in brief and at the same time also provide
necessary area for further improvement. It directly contributes in drawing a valid conclusion and
make overall research authentic in nature.
Chapter six Reflection: This chapter is based in the overall experience of researcher
gain in undertaking research activities. In this, investigator evaluate their performance within the
study and also improvise area.

Chapter 2- LITERATURE REVIEW
To review the key and major aspects of economy of Somalia which consists of its citizens,
and society, Government, Military and security and Somalia currency.
According to view point of Musse and Echchabi, (2017), Dollarization can be defining as the
process which is related to use of US dollar instead of domestic currency. This act as a function
which is used by the local government in order to strengthen the current economic situation on
economy. Somalia is a nation in Horn of Africa. It is bordered by Ethiopia to the west Djibouti.
To the Northwest, the Gulf of Aden to the north, the Indian Ocean to the east, and Kenya to the
south-west. Somalia has the longest coastline on Africa's mainland. This country has the total
population of 15 million where most of the individual belongs from Muslim religion. In this,
approximately 85% of residential individuals belongs to ethnic Somalis. Author also stated that
most the individual in the region use to speak Somali and Arabic. In current time, economic
condition of this nation are not so good. There are number of difficulties which are faced by to
economy in recent time (Masunda, 2016). These are related to civil war and terrorist activities
which are impacting on economic activities of nation.
According to view point of author there are different aspects of economy within Somalia. This
include citizens, and society, Government, Military & security and Somalia currency. These
determinates are act as an important aspect in implementation of dollarization (Corrales and
Imam, 2019).
According to view point of Faire, 2016, Somalia is that country which have faced number
of cultural changes and civilization. There are related to impact of different culture and religion.
In current time most of the population of Somalia belongs form Muslim religion. In present time,
this nation is facing civil war which impacted negatively in fluctuation of economy and also
leads to large number of deaths due to terrorism. Citizen in Somalia facing number of difficulties
in getting job and earning their livelihood. According to author the most of the population is
suffering due to war which is also impacting on their education and health care (Hassan Musse
and Echchabi, 2017). As, due to high rate of terrorist activities, life expectancy of an individual
is also low. This impact negatively on citizen which leads to large number of shift from this
nation to others. This is also evaluated form the study that there are number of changes which
have to be faced by the society due to changes in conditions. Education, health and religion are
the three pillars of sociality and helps in building this nation. This make it compulsory of any