Cover of MoneyWeek magazine issue no 597

Superstrong profits

13 July 2012 / Issue 597

Cash in on 21st century materials

PLUS:

  • Somalia's magic currency
  • Is the US facing a wave of city bankruptcies?
  • The art of the celebrity divorce

Excerpt

In gold we trust

One of my neighbours is writing a book about Somalia. It is to be called The Most Dangerous Place on Earth, something this sadly war-torn country has been for some time. But while Somalia is a couple of decades into a period during which it has had no central government to speak of, it isn’t quite the failed state you think it is.

In March, The Economist noted that its currency – the Somali shilling – is still in use, which it is. But not only is it still current (despite not being backed by anything), but it has also mostly held its value: failed states usually end up hyper-inflating their currency into oblivion and one way or another using the US dollar instead.

Not so Somalia – large transactions are generally “dollarised”, says The Economist, but smaller transactions happen in relatively stable shillings. A report in 2006 suggested that, in an enjoyable contradiction of all economic theory, around 80% of financial exchanges in Somalia took place in shillings.

How has this worked? Simple, really.

• Read the full editor’s letter here: In gold we trust.