Positively Valued Fiat Money after the Sovereign Disappears

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.