Afghanistan’s currency overtakes the currencies of Indian sub-continent countries!

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By Pervez Bari

BHOPAL—Even as the Afghan economy has shrunk by 20 percent to 30 percent in the last two years since the US Army left Afghanistan in August 2021, Afghanistan under the Taliban has made great strides, with its currency – Afghani – having amazingly overtaken the currencies of the countries in the Indian sub-continent, including that of Iran.

Though India has a much bigger economy than Afghanistan, there are only marginal differences between the currencies of the two countries. The exchange rate of the Indian rupee was Rs. 0.89 Afghan Afghani on September 4, 2023.

People may be surprised but this is a fact that Afghani is a stronger currency against the currencies of Bangladesh, Pakistan, Sri Lanka, and Iran. It is obviously astonishing how Afghans have been managing their economy with all foreign aid stopped, all bans imposed and even their 8 billion USD frozen by the West and that, too, happened following 20 years of devastating war imposed on them by NATO.

Economists believe that the stability of the Afghan currency against the US dollar can be beneficial for the prices of food materials. Seyar Qureshi, an economist says: “The decrease of dollar value and … stability of Afghani has had a positive impact on the reduction of prices of commodities being imported”.

How is the Afghan currency stronger than India?

One Afghani will fetch about 0.89 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 increases relative to its supply, then its price will also appreciate. The reverse will happen if demand falls or supply rises. The value of 1 INR was 0.999427 AFN on Aug 30, 2023).

Afghan currency is stronger in light of the fact that Afghanistan exports many fruits and goods but imports very few materials.

Hassibullah Noori, a spokesman for the Central Bank of Afghanistan, 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”.

According to data compiled by Bloomberg which was released on 17th August 2021, Afghanistan’s currency extended losses to a record low as the departure of the acting central bank governor added to political turmoil weighing investor sentiment. The Afghani fell as much as 4.6% on Tuesday to 86.0625 per dollar, a fourth day of decline.

The GDP of Afghanistan is estimated to have dropped by 20 percent following the Taliban’s 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.

Afghanistan’s most valuable resource

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, sulfphur, lithium, talc, and zinc, among many other minerals. Gemstones include high-quality emeralds, lapis lazuli, red garnet, and ruby.

Foreign donations are a major source of income for Afghanistan. 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 throughout the year, including tens of millions forced to skip meals daily or endure whole days without eating.

‘Afghani Strengthened Against Dollar’

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 country’s 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 an increase in exports, resumption of infrastructural projects and implementation of monetary policy are the main reasons for the stability of the Afghani currency.

“……..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.

Over 100 Experts Discuss Strengthening Afghanistan’s Payments System

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 (Now called X) 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. “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.

International society did not recognize the newly-established Taliban Govt

It may be mentioned here that on August 15, 2021, the Taliban gained sovereignty in Afghanistan again. International society, including the United States of America (US), did not recognize the newly-established government, claiming that the Taliban did not fulfill their commitments under the Doha Agreement. Moreover, the international society is applying sanctions towards the Taliban administration. In that sense, the US blocked the 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 deepened in Afghanistan under the Taliban; it is noteworthy that the national currency of the country, the Afghani, did not depreciate against foreign currencies 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 81.46337 AFN on September 03, 2023. It is remembered that in the beginning of the second Taliban era, 1 US dollar was equal to 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, 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 warned employees at the Shahzade Market, known as the Afghanistan Stock Exchange, to keep the dollar’s price stable.

Main reason for the appreciation of Afghan currency against the dollar

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. The US Treasury Department’s announcement 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, further strengthened Afghanistan’s currency.

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 other currencies, there are many reasons why the Afghan currency has maintained its value. Humanitarian aid from the international community, including the US, is the primary reason for this.

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