Afghanistan’s money is collapsing, and so is its economy


A currency converter displays a pile of extremely worn Afghan currency at Sarai Shahzadah, Kabul’s foreign exchange market, in Kabul, Afghanistan, September 7, 2022. (Marcus Yam/Los Angeles Times/TNS)

KABUL, Afghanistan (Tribune News Service) – Remember cash? These days, when a wave of phone calls or credit cards lands you a cup of coffee or more, it’s easy to forget what the real bills look like – and the abuse they go through over a period of time. average life of five years.

Not for Allah Mohammad Araya. In a country so sanctioned that much of his own money is out of reach, he sat cross-legged in a corner of Kabul’s main foreign exchange market, sifting through a pile of what looked like rubbish of paper but was actually a disaster area of ​​people in distress. afghanis, the currency of Afghanistan.

“Out of 10,000 Afghan notes here, maybe 1,000 of these notes can still be used,” he said, pointing to a 100 Afghan note that had faded so that one side looked clear. Another looked more like scotch than bill. A third wasn’t much better, the victim of a poor cut-and-paste job that left its color scheme – and serial numbers – mismatched.

“That one, even the central bank won’t take it,” he said, shaking his head before setting it out in the sun for further examination.

A year after the Taliban came to power, the Afghan economy remains in crisis. The cut in international aid has eaten up 45% of the country’s GDP, and the World Bank and International Monetary Fund expect economic output to contract by another third by the end of 2022. half of the country’s 39 million people need humanitarian aid. , according to the UN.

Worse still, far-reaching Western sanctions and Washington’s freezing of $7 billion in Afghan central bank assets deposited at the Federal Reserve Bank in New York mean that credit card and online payments are being cut off. This has turned Afghanistan into a cash-only economy, not only at a time when capital controls limit the amount of money you can take out of the bank, but also when no new notes come into circulation to replace used banknotes.

In previous years, Afghanistan’s central bank – known as Da Afghanistan Bank, or DAB – withdrew 3-4 billion Afghans (approximately $33-45 million) annually from decrepit banknotes and replaced them with new ones. new prints abroad. (Afghanistan doesn’t have its own currency.) But international sanctions over collaborating with the Taliban have spooked foreign printers, plunging the country into a liquidity crunch as Afghans grapple with a collapsing currency. literally.

“The condition of these banknotes, it’s terrible, and it’s getting worse day by day,” said Amin Jan Khosti, a veteran member of the money changers’ syndicate and head of the foreign exchange market, the Sarai Shahzadeh. “People try to iron them, they play with the serial numbers. We have notified DAB and we know that they are trying to find solutions.

In January 2020, the then Republic of Afghanistan contracted the state-owned Polish Security Printing Works, or PWPW, to print 380 million banknotes equivalent to 10 billion Afghanis for a contract worth over $4 million. At the time of the Taliban takeover, PWPW had fulfilled 70% of the contract, said Shah Mohammad Mehrabi, a Washington-based board member of Afghanistan’s central bank who was appointed by the previous government but continues to serve. serve under the Taliban.

“The last tranche was to be delivered last September. But it was suspended when the interim Taliban administration came to power and sanctions were imposed,” Mehrabi said.

Talks between the DAB and the United States Departments of State and Treasury resulted in assurances to the PWPW that it would not go against the bans. “But then we had logistical problems,” Mehrabi said. “Who would deliver these Afghans to the central bank?

Money changers arrange their stacks of Afghan currency and wait for customers at Sarai Shahzadah, Kabul's foreign exchange market, in Kabul, Afghanistan, September 7, 2022.

Money changers organize their stacks of Afghan currency and wait for customers at Sarai Shahzadah, Kabul’s foreign exchange market, in Kabul, Afghanistan, September 7, 2022. (Marcus Yam/Los Angeles Times/TNS)

Even Qatar, which has facilitated the Taliban’s diplomatic efforts, has been reluctant to do so without Western assurances. According to Mehrabi, the Treasury Department said “permission was granted to all entities”, but an agreement between Qatar and the DAB did not materialize.

And there was yet another problem: DAB had no intermediary through which it could send payments, including to PWPW.

“Each time DAB tried to make a payment to PWPW via another intermediary, the payment was rejected,” Mehrabi said, adding that a new contract with French company Oberthur Fiduciaire for 390 million tickets, brokered by the previous Afghan government, has not yet been signed. .

The consequences of the shortage of bills are compounded by the overall increase in prices, which have risen in part due to the ripple effects of the war in Ukraine, said Philippe Kropf, communications officer of the United Nations World Food Program in Afghanistan.

People need more money to pay for basic goods, but the amount of hard currency available is decreasing.

“We are injecting $55.8 million each month in cash to beneficiaries, commercial transporters, food suppliers and salaries,” he said. “But cash that is physically missing exacerbates problems with cash transfers. Now we are telling our recipients to look at the cash they receive and make sure everything is okay.

You can almost see the currency degrade in real time at the Sarai Shahzadeh Market, a dilapidated filth-encrusted building that is sometimes choked with miasma from sewage from the nearby Darya-e-Kabul River.

Inside are labyrinthine passageways with hundreds of exchange offices and swarms of currency brokers. Many congregate on the rooftop, which functions as an open-air currency auction site and includes a cafeteria serving fries and egg sandwiches, not far from where Araya, the trader sifting through old tickets, sat on his carpet under an umbrella.

He idly flipped through a pile of 100 afghani notes – each worth around $1.13 – before settling on one particularly distressing example. He leaned over to examine its production date.

“These are supposed to last about three years,” he said, a contrite smile on his face. “This one has been around for 14 years.”

On the other side of the roof was Qudratullah Mohammadi, a kind-faced man ensconced behind nine piles of tattered afghanis tied with rubber bands.

“Tens, 20s, 50s, 100s – those are the worst,” he said, pointing to his pile of rejects. “I argue with people, I fight with them, but most don’t accept these bills” when trying to convert foreign currency into Afghanis.

“I’m saving them for the day the central bank takes them,” Mohammadi said.

The aversion to lower denominations is also affecting transactions the other way around, said Faiz Zaland, a professor of political science at Kabul University. Currency dealers are imposing a penalty on customers who exchange low-face value Afghanis for foreign cash because the central bank refuses to accept them.

“You’ll get a rate if you give them 1,000 and 500 Afghani notes, but with 10 and 50 you have to pay more,” Zaland said.

Some have attempted to bypass the banking system entirely using cryptocurrencies, which saw a resurgence in popularity after the Taliban takeover. A report by data firm Chainalysis saw Afghanistan rise to 20th out of 154 countries in crypto adoption; a year earlier, he hadn’t even earned a ranking.

Turning that into cash in hand is a complicated process. One method has been to use bitcoin to buy Universal Cash, one of the currencies used in the hugely popular online game PlayerUnknown’s Battlegrounds, or PUBG. This can then be sold at a number of exchange houses for cash.

But the Taliban recently imposed a nationwide ban on digital currency trading. In August, local media reported that authorities shut down 16 cryptocurrency exchange houses in the western province of Herat.

“When the price of bitcoin more than halved, the (government) decided to stop everything. They shut down some people here,” said Mohammad Mansour, a forex trader who has an office in a side maze of Sarai Shahzadeh.

Others believe the Taliban’s actions indicate they are in no rush to resolve the liquidity crisis.

Money changers exchange Afghan currency for US dollars at Sarai Shahzadah, Kabul's foreign exchange market, in Kabul, Afghanistan, September 7, 2022.

Money changers exchange Afghan currency for US dollars at Sarai Shahzadah, Kabul’s foreign exchange market, in Kabul, Afghanistan, September 7, 2022. (Marcus Yam/Los Angeles Times/TNS)

“The incentive for not having enough money in the market is that your exchange rate remains high against the US dollar,” Zaland said. It took 77 afghanis to buy 1 dollar at the start of 2021, but now it takes around 88 – a weaker depreciation of the afghani than expected.

Either way, the talks are largely frozen for now: following a US drone strike on a home in Kabul that killed al-Qaeda leader Ayman al-Zawahri in July , Washington has suspended talks with the DAB, Mehrabi said.

This month, the Departments of State and Treasury issued a joint statement announcing the creation of the Swiss-based Afghan Fund, which will “protect, preserve and make targeted disbursements” of half of the frozen reserves, using 3.5 billion dollars to stabilize the Afghan situation. the economy while keeping the money “out of the hands of the Taliban and other malign actors”.

The statement said that in order to restore confidence at the international level, the DAB must show that it is free from political interference, that it has “appropriate” controls against money laundering and the financing of terrorism and that it submits to evaluation and third-party reviewers.

This all adds up to a major headache for Abdul Qaher Faqiri, a Kabul-based businessman with projects involving importing goods and mining. Leaning back in his chair, he pulled out a worn 20 afghani note from his wallet.

“Afghanistan is like our money,” he said, turning the bill over to examine the myriad of tears and discoloration from years of use. “It’s all a big, big deal.”

©2022 Los Angeles Times.

Visit latimes.com.

Distributed by Tribune Content Agency, LLC.

Previous MACC dismantles cartel in Shah Alam City Council for project monopoly, says chief commissioner
Next Silver Alert Deborah Davidson-Stewart - EIN Presswire