How does the Afghan currency manage to be the best performing currency at the moment?

The Afghani, the currency of Afghanistan, achieved the best global performance in the 3rd quarter. How do the Taliban, who took Kabul in the summer of 2021, achieve this?

If we follow quarterly data from the American agency Bloomberg, with an appreciation of almost 10% against the dollar, the Afghani ended the 3rd quarter ahead of the Colombian peso. Over the year, the currency of Afghanistan is one of the three largest increases in the world, with those of Colombia and Sri Lanka.

Of course, this absolutely does not mean that currency traders – specialists in exchange operations between different currencies – in New York, London or Tokyo are suddenly snapping up the currency of one of the poorest nations in the world. But this astonishing performance deserves an explanation.

Several explanatory factors

The immediate explanation is first of all the flows of international aid towards this bloodless economy, the only one outside the African continent which, in parity of purchasing power per capita, is among the ten most disadvantaged in the world. However, since the Taliban regained power in the summer of 2021, the United Nations has provided 5.5 billion euros.

Afghanistan, still under various sanctions, remains largely cut off from international financial circuits. But, in addition to the UN money, local currency exchange operators see the money that their compatriots abroad send home to their families. And, another key to understanding this surge in the Afghani, charitable foundations from Gulf countries are starting to help again.

There is also the orthodoxy of the Taliban’s monetary and exchange rate policies. Transfer control is strict. The authorities have banned the use of any foreign currency in commerce, including the rupee of neighboring Pakistan. Physical movements in currencies are therefore restricted and online transactions in currencies are banned. Under these conditions, domestic demand can only be transferred to the national currency.

GDP drop of 20% in two years

The central bank in Kabul welcomes, in a press release, the elements compiled by Bloomberg. The institution controlled by religious fundamentalists highlights “its excellent management and the implementation of sound monetary policies”. The Bank of Afghanistan maintains that, as a result, the Afghani is “widely accepted as a stable currency.”

In any case, it appears striking that, in recent days, many media in India and Pakistan are giving credence to this version, even though since the victory of the Taliban, the gross domestic product has collapsed by 20%. But the new regime suggests that this dizzying fall has now been stopped.

In a report, the World Bank admits, in any case, the beginnings of control in Kabul on a macro-economic level. Growth in 2024 seems possible, in a context where inflation is falling, in particular through this favorable effect of the exchange rate. The international financial institution notes a form of normality in the timely payment of civil servants’ salaries and in the transit of formal salaries through banking establishments. Acting Economy Minister Din Mohammad Hanif hailed the document as an “accurate representation of the facts.”

The challenge of attracting foreign capital

The whole object in Kabul now becomes to convince external capital to venture there. For this, the Taliban leaders have opted to revive the story of the Afghan mining Eldorado, beyond these immense legal, industrial and logistical pitfalls. At the end of August, they said they had signed seven mining contracts worth a total of $6.5 billion, including Chinese, Indian and Turkish interests, among others. This would involve extracting iron ore, lead, zinc and gold.

An Afghan government advisor told the Qatari channel Al Jazeera that these projects are “on the verge of strengthening the inflow of foreign currencies into the country”, since, according to him, each of these seven mines “can boast of have European and Asian partners. A former senior official from the Ministry of Mines refuses to give credence to this statement, given, according to him, the “absence of transparency” concerning the texts of these agreements.

All this is part of an intense diplomatic phase. For the first time since the return of the Taliban, a major capital, Beijing, has just appointed a new ambassador to Kabul. And on September 29 in Kazan (Russia), joint discussions began with the Russians, Chinese, Indians, Iranians and Pakistanis, both on full recognition and on commercial normalization. The process is only just beginning.

Benaouda Abdeddaim International editorialist

Top Articles

Leave a Reply

Your email address will not be published. Required fields are marked *