Afghan Currency Surges Despite Challenges
Unexpected Rise
Despite being a nation grappling with poverty and a poor human rights record, Afghanistan has seen its currency, the Afghani, rise to global prominence this quarter. This surprising shift can be attributed to the infusion of billions of dollars from humanitarian aid and increased trade with Asian neighbors.
Taliban’s Grip on the Afghani
The Taliban, in power for two years, has taken measures to maintain control over the Afghani. They’ve prohibited the use of dollars and Pakistani rupees in local transactions, imposed strict regulations on taking US dollars out of the country, and even banned online trading while threatening violators with imprisonment.
Currency Controls and Remittances
These currency controls, coupled with cash inflows and remittances, have propelled the Afghani’s value up by approximately 9 percent this quarter. This gain surpasses the 3 percent rise of the Colombian peso, and Afghani is up about 14 percent for the year, making it the third-strongest currency globally, trailing only behind the Colombian peso and Sri Lankan rupee.
Challenges on the Ground
However, the Afghani’s resurgence doesn’t reflect the ongoing turmoil in Afghanistan. The country remains largely isolated from the global financial system due to sanctions. Widespread unemployment, with two-thirds of households struggling to afford necessities, and a shift from inflation to deflation have exacerbated the hardships faced by Afghan citizens.
Short-Term Phenomenon
Experts caution that while the currency controls are currently effective, the economic, social, and political instability in Afghanistan will likely limit Afghani’s rise to a short-term phenomenon. Kamran Bokhari, an expert in Middle Eastern, Central, and South Asian affairs, emphasizes this point.
Dollar Smuggling and Central Bank Support
Notably, dollars smuggled into Afghanistan from Pakistan have provided a lifeline to the Taliban in recent months. To support the currency, Da Afghanistan Bank, the country’s central bank, holds weekly auctions, injecting up to $16 million into the market. As the pressure on the currency has eased, the central bank has increased withdrawal limits, with businesses now able to withdraw up to $40,000 per month, and individuals up to $600 per week.
Closing Thoughts
While the Afghani’s rise is a surprising economic development, it does not reflect the ongoing struggles faced by the Afghan people. The nation’s long-term stability and prosperity remain uncertain, with many challenges still to be overcome.
