War-torn Afghanistan under Taliban regime, after 31st of August 2021 when the last USA Army man left under pressure from various quarters, has made an impressive turnaround exactly within two years. Afghanistan’s currency Afghani has amazingly overtaken the currencies of the Indian sub-continent countries including of Iran.
Undoubtedly we Indians have a bigger economy but on 30th of August 2023 Afghan currency, Afghani, has taken the Indian Rupee by surprise though marginally. Now, Afghani is trading stronger against Bangladeshi, Pakistani, Sri Lankan, Indian, Irani, et al currencies of the region. It is obviously astonishing how Afghans have been managing their economy with all foreign aids stopped, all bans imposed and even their 8 billion USD frozen by the West – all happening following a 20-year of devastating war forced on them by the United States and its NATO allies.
Economists believe that the stability of the Afghan currency against the US dollar can be beneficial for prices of food materials. Seyar Qureshi, an economist says:
“The decrease of dollar value and ... stability of Afghani currency has had a positive impact on the reduction of prices of commodities being imported”.
One Afghan currency Afghani will fetch about 0.87 paise in Indian currency. The exchange rate is determined on the basis of demand for Afghani to Rupee and its supply. If the demand for Afghani will increase relative to its supply then its price will also appreciate. The reverse will happen if demand falls or supply rises. The exchange rate of the Indian rupee was Rs. 0.89 Afghani on September 4, 2023.
Afghan currency is higher in light of the fact that Afghanistan has a more extended history, has been known for exchanging many foods grown from the ground to numerous nations and is not bringing in or trading as much as different countries yet.
Hassibullah Noori, a spokesman for the Central Bank, has said:
“The start of the national and international projects in the country, prevention of smuggling of foreign currency and increase of exports has been effective in the stability of the Afghan currency”.
Afghanistan is officially reported to be having a debt-to-GDP ratio of 7 per cent by the IMF.
The GDP of Afghanistan is estimated to have dropped by 20 per cent following the Taliban return to power. Following this, after months of free-fall, the Afghan economy began stabilizing, as a result of the Taliban's restrictions on smuggled imports, limits on banking transactions, and U.N. aid. Besides, the Taliban also generate huge incomes from mining activities in iron ore, marble, copper, gold, zinc and other metals and rare-earth minerals. They tax people and industries - mining operations, media, telecommunications and development projects funded by international aid. They also tax harvest and wealth.
Iron is the most abundant of Afghanistan's valuable metals. The total iron ore reserve is estimated to be 2.2 billion metric tonnes, placing Afghanistan among the top 10 countries in extractable iron.
Meanwhile, Afghanistan has over 1,400 mineral fields, containing barite, chromite, coal, copper, gold, iron ore, lead, natural gas, petroleum, precious and semi-precious stones, salt, sulphur, lithium, talc, and zinc, among many other minerals. Gemstones include high-quality emeralds, lapis lazuli, red garnet and ruby.
While foreign donations are a major source of income. According to Afghanistan's Center for Research and Policy Studies, the Taliban received between $150 million to $200 million annually from private citizens and charitable foundations in the Gulf countries.
Afghanistan's humanitarian crisis worsened in 2022, largely because of the country's enduring economic collapse in the wake of the Taliban takeover. Over 90 percent of the population remained food insecure through the year, including tens of millions forced to skip meals daily or endure whole days without eating.
According to Bibi Amina Hakimi, TOLO news Correspondent, the World Food Organization (WFO), said in a report that the stability of the Afghan currency began to take hold between January and March 2022 when UN cash shipments began, and the de facto authorities exerted strong controls on the illegal export of foreign currency, strengthening the Afghani.
“AFN against foreign currencies can be seen as a positive development for the economy, as it can help to stabilize prices and improve household purchasing power,” the report said.
This comes as the Central Bank said that increase in exports, resumption of infrastructural projects and implementation of monetary policy are the main reasons for the stability of the Afghani currency.
“Implementation of some national and international stories, export development, prevention of extra expenses in government affairs, transparency and implementation of monetary policies caused stability of Afghani currency against foreign currencies,” said Hassibullah Noori, the Central Bank’s spokesman. The Central Bank said earlier that Afghanistan has been placed among 9 countries whose currency has been stabilized.
Meanwhile, the Union of Sarai Shahzada Money Exchangers suggested that the Central Bank deliver dollars in cash packages to the market occasionally to maintain the stability of the Afghan currency.
A spokesman for the union of money exchangers, Abdul Rahman Zirak, also called for the prevention of the use of foreign currencies in the country’s market.
“We want the Central Bank to deliver dollars repeatedly to the market, which has its benefit on the value of the Afghani currency,” Zirak said.
Meanwhile, Melinda Good, World Bank Country Director for Afghanistan, said at a workshop, where over 100 experts from domestic and international banks, digital providers, international partners and civil society discussed ways to strengthen Afghanistan’s payments system to help revive the private sector and create jobs.
The World Bank Country Director for Afghanistan noted on Twitter that “a reliable and transparent system will help build confidence in payments and ensure that aid for the Afghan people goes to the Afghan people and helps the private sector, which employs many Afghans.”
"The banking crisis has significantly eroded people's trust in the financial sector and financial institutions, and it seems very difficult for projects that need electronic money transfers and aid for people to succeed easily,” said Mir Shikab Mir, an economist.
According to reports, around 30 World Bank projects are still unfinished, and the Ministry of Economy asked aid organizations, especially the World Bank, to invest in a large economic project in the country.
"We ask the international organizations, including the International Monetary Fund and the World Bank, to support the Islamic Emirate and the people of Afghanistan in the resumption of development projects, half-finished projects, as well as in connection with the creation of jobs and lowering the unemployment rate," said Abdul Latif Nazari, deputy of the Ministry of Economy.
Meanwhile, the Senate of Canada has passed a bill intended to unblock Canadian aid in Afghanistan without amendment.
"We ask Canada to assist the people of Afghanistan, offer employment opportunities for the people of Afghanistan to work, and invest in agriculture, so that we can come out from the crisis,” Abdul Basir Taraki, an economist said.
The World Bank has previously said that the outlook for the economy is steady due to the continuance of aid to Afghanistan, and that it is expected that good output growth will continue over the next two years.
Meanwhile, the national currency of Afghanistan has been subjected to a number of different iterations throughout the course of the last few decades. In 1925, the Afghani currency that we use today succeeded the Afghan rupee; in 2002, it was subjected to a revision and in 2003, it was introduced into circulation as the Afghani (AFN).
The former Afghani currency was based on a fixed exchange rate, but the new Afghani uses a managed variable exchange rate. The economy of Afghanistan has been through a lot recently. Following the conclusion of the Soviet-Afghan War, which began in 1979 and lasted for more than a decade, Afghanistan has been wracked by a variety of violent civil wars ever since.
The Afghanistan Financial Network is currently managed by Da Afghanistan Bank, which is Afghanistan's Central Bank. The objective of the Central Bank is to maintain monetary exchange rate flexibility while simultaneously lowering inflationary pressures. Since 2005, when they were first brought to the market as a replacement for the AFN one, two, and five banknotes, coins have been in use as currency. The Afghan rupee, which had been in use as a currency in Afghanistan since 1891, was finally replaced by the original Afghani in the year 1925. One Afghani can be further subdivided into 100 puls, and one amani can be purchased for every 20 Afghanis that are traded in exchange for it.
International society did not recognize newly-established Taliban Govt.
It may be mentioned here that on August 15, 2021, Taliban gained sovereignty in Afghanistan again. International society, including the United States of America (USA), did not recognize the newly-established government, claiming that the Taliban did not fulfil their commitments under the Doha Agreement. Moreover, the international society is applying sanctions towards the Taliban administration. In that sense, the US blocked national reserves of Afghanistan. In the current situation, states do not make official agreements because they do not recognize the Taliban; foreign companies avoid investing in the country. In addition, drought and natural disasters cause the problems in the country to deepen.
While economic and social problems deepen in Afghanistan under the Taliban; it is noteworthy that the national currency of the country, the Afghani, did not depreciate against foreign currencies and especially against the dollar. As a matter of fact, in a post on his social media account, Taliban Spokesman Zabiullah Mujahid stated that 1 US dollar equals 87 Afghanis. Now, it is seen that this has decreased to 73.46 AFN September 05, 2023 08:48 IST at present. It is remembered that in the beginning of the second Taliban era, 1 US dollar was equal around 80 Afghanis. Based on these data, it can be said that there has not been a serious depreciation in the Afghan national currency in the last year. However, the Pakistani Rupee, which is the neighbour of Afghanistan, is rapidly depreciating against the dollar.
There are many reasons for maintaining the value of the Afghani against foreign currencies. The first of them is the hot money sent by the international community as humanitarian aid. According to the data of the Central Bank of Afghanistan, since August 2021, the international community has sent approximately $1.3 billion in humanitarian aid. The money first enters the International Bank of Afghanistan (AUB), and then it is converted into Afghan money and distributed to the Afghan people either directly or by purchasing food and clothing. For instance, US Special Envoy to Afghanistan Tom West announced that his country is sending $1.1 billion in humanitarian aid to Afghanistan. Especially after the Washington administration announced that international organizations and non-governmental organizations would not impose sanctions on humanitarian aid to Afghanistan, many organizations started to send aid to Afghanistan, again. In recent times, the international community sends an average of 40 million dollars a week to Afghanistan. This ensures that the country’s currency maintains its value.
Another reason is that the Taliban avoid or cannot print money. As a matter of fact, it is known that the Central Bank of Afghanistan has not printed money in the last two years. Because when un-backed money is printed, the value of the dollar will increase. The Taliban enforces the use of Afghan money in the market. In other words, there is a shortage of Afghanis in the Afghan market and the Taliban approves the use of old coins.
In addition, the increase in prices in the country due to the decrease in Afghanistan’s foreign trade is another factor that causes the Afghan currency to maintain its value. The price of food products has doubled since the Taliban dominated Afghanistan. For example, before August 15, 2021, the price of 50 kg of flour was 1200 Afghanis; currently it is 2500 Afghans. However, the country does not need the dollar much as the other states reduce the trade volume with Afghanistan.
Contrary to the Taliban’s limitation of public spending and the overthrown regime; the fact that taxes and revenues are transferred directly to the treasury also causes the value of Afghan money to remain constant. In addition, the Taliban warns employees at the Shahzade Market, known as the Afghanistan Stock Exchange, to keep the dollar’s price stable.
The main reason for the appreciation of the Afghan currency against the dollar in recent days is the negotiations between the USA and the Taliban. In the past, the US Treasury Department announced that it would transfer $3.5 billion of the country’s national reserves to an Afghan Fund established in Switzerland to ensure economic stability in Afghanistan. Another remarkable development is the meeting of the US and Taliban delegations in Doha after the murder of Al-Qaeda leader Ayman Al-Zawahiri. In this sense, the American media claimed that David Cohen, Deputy Head of US Intelligence, and Abdul Hak Vasik, the Head of Intelligence of the Taliban, met in the capital of Qatar. Neither side denied the news. Therefore, it is considered that the meeting took place. These contacts have added value to Afghanistan’s economy.
The establishment of the Afghan Fund and the meeting between the US and the Taliban created an impression that the parties could approach each other more realistically and take concrete steps towards the solution of the Afghan problem. According to the Washington administration, although the Taliban dominate the entire country, they cannot solve the problems in Afghanistan alone. For the Taliban, the US is the world’s superpower and the problem of recognition cannot be overcome without reconciliation with Washington. The fact that these two perspectives pushed the parties to negotiations had a positive effect on the Afghan market and led to the appreciation of the Afghan currency.
As a result, against the other currencies, there are many reasons why the Afghan currency has been protecting its value. Humanitarian aid from the international society, including the US, is primary reason of this. Because of the West protecting shortage of dollars in the market thanks to the aids which causes Afghan Money to stabilize.
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