The Afghani, the currency of conflict-ridden Afghanistan, has taken the financial world by surprise by emerging as the best-performing currency of the September quarter in 2023. This unexpected surge is attributed to a combination of factors, including massive dollar inflow in the form of humanitarian aid and currency control measures imposed by the ruling Taliban. As of September 26th, the Afghani was trading at approximately 78.25 against the US dollar.
Humanitarian Aid Fuels Afghani’s Rise
One of the primary factors contributing to the Afghani’s resurgence is the substantial humanitarian aid pouring into the country. In the wake of the regime change in August 2021, Afghanistan faced a dire humanitarian crisis, prompting international organizations to extend a helping hand. The United Nations, for instance, has provided a staggering $5.8 billion in aid and development since the change in government, with $4 billion of that sum transferred in 2022 alone. This influx of foreign currency has played a pivotal role in stabilizing the Afghan economy.
Afghanistan’s Resource Potential Attracts Investment
Another factor bolstering the Afghani is Afghanistan’s vast natural resources, including significant reserves of lithium. The Taliban has expressed its intent to tap into these resources to attract foreign investments. Additionally, Afghanistan’s inclusion under China’s Belt and Road Initiative in May 2023 has further enhanced the prospects of increased foreign investment, particularly for infrastructure development projects.
Taliban’s Currency Control Measures
Behind the Afghani’s remarkable strengthening are the currency control measures implemented by the Taliban regime. In a bid to exert greater control over the financial system, the Taliban has banned online trading, prohibited the use of US dollars and Pakistani rupees for domestic transactions, and intensified efforts to prevent the exodus of greenbacks from the country. These measures, while controversial, have contributed to stabilizing the Afghani.
Inflationary Pressure and the Role of a Strong Afghani
Amidst global economic uncertainties and surging crude oil prices, the resilience of the Afghani has become a crucial factor in helping Afghanistan tackle inflationary pressures. The fear of oil prices surpassing the $100 per barrel mark has put additional strain on the country’s economy. However, a strong Afghani can help mitigate the impact of rising oil prices and keep inflation in check.
Central Bank’s Response to a Strong Afghani
The revival of the Afghani has allowed Afghanistan’s central bank to adjust its policies. Notably, the bank has eased limits on dollar withdrawals, raising the monthly limit for businesses from $25,000 to $40,000 and increasing the weekly limit for individuals from $600 to $200. These measures aim to facilitate smoother financial transactions and support economic activities.
An Aid To Address Economic Challenges And Fostering Stability
The Afghani’s unexpected rise to become the best-performing currency of the September quarter underscores the complex dynamics at play in Afghanistan’s economy. While humanitarian aid and resource potential have injected much-needed stability, the Taliban’s currency control measures have also played a role. As Afghanistan navigates a path forward, the strength of its currency will continue to be a crucial factor in addressing economic challenges and fostering stability in this tumultuous region.
Key takeaways for competitive examination
- Acting Prime Minister of Afghanistan: Hasan Akhund