In a surprising turn of events, Afghanistan’s currency, the Afghani, became the world’s best-performing currency for the September quarter.
This surge was driven by a host of factors, shedding light on the complex economic dynamics of a nation grappling with a dire human rights record and global isolation.
Unraveling the Afghani’s rise
Throughout the September quarter, the Afghani witnessed a 9 per cent increase in value, performing better than other heavyweight currencies. This surge can be attributed to two key factors:
Influx of humanitarian aid: Afghanistan experienced a substantial influx of humanitarian aid, providing a much-needed boost to its economy.
Increased trade activities: Trade activities with neighboring Asian countries also played a pivotal role in bolstering the Afghani’s value.
What measures did Taliban take?
To assert control over their nation’s economy and currency, the Taliban introduced a series of measures:
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Prohibition of foreign currencies: The Taliban banned the use of US dollars and Pakistani rupees in local transactions, aiming to solidify Afghani’s role as the primary currency.
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Stringent outflow restrictions: To curb capital flight, the regime imposed strict limitations on the outflow of US dollars from Afghanistan.
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Criminalisation of online currency trading: Going to great lengths, the Taliban criminalized online currency trading, with severe penalties, including imprisonment, for violators.
Currency gains, but poverty bites
Despite the success of the Afghani, Afghanistan remains mired in persistent poverty and a distressing human rights situation.
According to the United Nations Development Programme, the economic outlook for 2023 remains exceptionally challenging. Recent restrictions on women’s education and employment may further diminish international aid, intensifying economic hardships.
The report projects real GDP growth of 1.3 per cent in 2023 and 0.4 per cent in 2024, with a decline in GDP per capita from US$359 in 2022 to US$345 in 2024, exacerbating the difficulties faced by Afghans. Any reduction in international aid during this period threatens to prolong extreme poverty for decades.
Afghanistan’s isolation and economic struggles
Afghanistan’s isolation from the global financial system, driven by international sanctions, is underscored in a recent World Bank report, revealing:
High unemployment: The nation grapples with soaring unemployment rates, exacerbating economic challenges.
Household hardships: Approximately two-thirds of households struggle to meet basic needs, underscoring the economic plight of the population.
Inflation to deflation: Afghanistan has transitioned from inflation to deflation, further complicating economic stability.
Surviving on humanitarian aid
To alleviate economic hardships, the United Nations has initiated regular shipments of US dollars, totaling up to $40 million. This aid is aimed at supporting impoverished Afghans over an extended period, commencing from the end of 2021.
The role of Sarrafs
Within the current financial landscape, local money changers, known as “sarraf,” play a crucial role in facilitating foreign currency exchanges.
They operate market stalls and businesses across Afghanistan. Sarai Shahzada, an open-air market in Kabul, serves as Afghanistan’s de facto financial center, facilitating daily exchanges of tens of millions of dollars. Currently, there are no trading restrictions in place.
Due to financial sanctions, nearly all remittances to Afghanistan rely on the Hawala money transfer system, upon which sarrafs heavily depend.
Uncertain future
The United Nations estimates that Afghanistan requires approximately $3.2 billion in assistance this year, yet only $1.1 billion has been provided, highlighting a significant funding gap.
Last year, the United Nations allocated approximately $4 billion to address the critical hunger faced by 41 million people in Afghanistan.
The unexpected rise of Afghanistan’s currency underscores a story of resilience amidst adversity. While the Afghani shines on the global stage with its remarkable performance, the nation grapples with a myriad of daunting challenges on its path toward stability and prosperity.
