The ruling Taliban, who seized power two years ago, have also unleashed a series of measures to retain power Afghan in a stronghold, including a ban on the use of dollars and Pakistani rupees in local transactions and stricter restrictions on taking dollars abroad. It has made online trading illegal and threatened those who break the rules with prison.
The currency controls, cash inflows and other remittances have helped the Afghan rise about 9% this quarter, outpacing the Colombian peso’s 3% gain, data compiled by Bloomberg show. The Afghan is up about 14% this year, putting it in third place on the global list, behind the currencies of Colombia and Sri Lanka.
But the comparison with the currency’s losses following regime change also belies the dramatic turmoil that continues on the ground as Afghanistan is largely cut off from the global financial system due to sanctions.
According to a World Bank report, unemployment is rampant, two-thirds of households are struggling to afford basic services and inflation has turned to deflation. Planeloads of US dollars have arrived almost weekly from the United Nations to support the poor, some as much as US$40 million, for at least 18 months since late 2021.
“The tough currency controls are working, but economic, social and political instability will make this currency appreciation a short-term phenomenon,” said Kamran Bokhari, an expert on Middle Eastern, Central and South Asian affairs at the Washington Post. based New Lines Institute for Strategy & Policy.
Market stalls
In Afghanistan, foreign currency is now traded largely through money changers – locally called sarrafs – who set up stalls in markets or operate from shops in towns and villages. Kabul’s bustling Sarai Shahzada open-air market is effectively the country’s financial center, where the equivalent of tens of millions of dollars crosses each day. According to the central bank, there is no limit on trading.
Due to the financial sanctions, almost all remittances to Afghanistan are now transferred via a centuries-old Hawala money transfer system that is used in the Middle East and elsewhere. Hawala is an important part of the sarrafs’ activities.
The UN, which estimated that Afghanistan needs about $3.2 billion in aid this year, has deployed about $1.1 billion of that, according to the world body’s financial tracking service. Last year, the organization spent about $4 billion as half of Afghanistan’s 41 million residents faced life-threatening hunger.
The World Bank predicts the economy will stop shrinking this year and grow between 2% and 3% through 2025, although it warned of risks including a reduction in global aid as the Taliban intensifies its oppression of women.
“Tightened restrictions on currency transactions and a very gradual improvement in trading are driving demand for the Afghani,” said Anwita Basu, head of Europe Country Risk at BMI in London. Afghanistan is likely to stabilize at current levels until the end of the year, she said.
A stronger currency could help limit inflationary pressures on crucial imports for Afghanistan such as oil, especially as crude oil prices approach $100 a barrel.
Mineral springs
The cash-strapped Taliban government is seeking investments in the country’s rich resources, including lithium, estimated to be worth as much as $3 trillion. Chinese, British and Turkish companies were involved in $6.5 billion in contracts awarded this month to build large-scale iron, ore and gold mines. The Taliban also struck a deal with a Chinese oil extraction company in January.
In May, China and Pakistan also agreed to expand the Belt and Road Initiative to Afghanistan, potentially raising billions of dollars to finance infrastructure projects. In a sign of the thawing of ties, a U.S. business delegation co-organized a conference in Kabul in September to lure global investors.
Meanwhile, dollars smuggled from Pakistan into Afghanistan have also given a lifeline to the Taliban in recent months. Da Afghanistan Bank, the country’s central bank, auctions up to $16 million almost every week to support the currency, spokesman Hassibullah Noori said.
Afghani erases post-Taliban crisis | The Afghan currency has returned to the level it was before the Taliban regained power
As pressure on the currency eased, the central bank raised the dollar withdrawal limit from $25,000 to $40,000 per month for businesses, and $600 per week for individuals from $200 two years ago. The Afghan was trading around 78.50 per dollar on Monday.
Painful situation
But even as the money flows in, the humanitarian situation and financial prospects remain dire.
The US had agreed to release $3.5 billion of the $9.5 billion in frozen foreign exchange reserves, but shelved the plan after it emerged that the central bank is not independent of the Taliban and has inadequate controls on money laundering and the fight against terrorism. funding, according to a July report from the Special Inspector General for Afghanistan Reconstruction.
The UN has warned that if foreign aid falls by 30% this year, per capita income would fall to $306, a 40% drop from 2020 levels.
The sweeping restrictions against women have also led to divisions within the Taliban government, with some openly criticizing their supreme leader Haibatullah Akhundzada. Akhundzada has issued orders banning women from pursuing education, working, visiting public parks, using gyms and traveling long distances without a male escort.
According to a UN report this month, the Taliban committed more than 1,600 cases of human rights violations, including torture during the arrest and detention of people, between January 2022 and the end of July this year.
Meanwhile, a 2023 Pentagon assessment found that the Islamic State is once again using Afghanistan as a base to plan attacks around the world, the Washington Post reports. The terror group has also stepped up attacks in Afghanistan, including the assassination of a deputy governor and the bombing of a mosque
Islamic State militants have threatened to target Chinese, Indian and Iranian embassies in Afghanistan, according to the UN.
“Ultimately, political stability will make or break the currency. If the Taliban lose control at home, the currency will also suffer,” BMI’s Basu said.
