Afghanistan’s currency has risen to the top of the worldwide rankings this quarter, an odd position for a nation that is impoverished and has one of the worst records for human rights in the world. Afghanistan has received billions of dollars in humanitarian help, and trade with its Asian neighbours has increased.
The ruling Taliban, who seized control of the country two years ago, has also enacted a number of measures to maintain Afghan dominance, such as outlawing the use of dollars and Pakistani rupees in local transactions and increasing regulations on importing dollars into the country. Online commerce has been outlawed, and individuals who break the law risk being imprisoned.
Unemployment is rampant, two-thirds of households struggle to afford basic items and inflation has turned into deflation, according to a World Bank report. Planeloads of US dollars arrived almost weekly from the United Nations to support the poor, some of up to $40 million, for at least 18 months since the end of 2021.
Since the Taliban retook power in 2021, the UN has committed over $5.8 billion to humanitarian and development projects in Afghanistan.
The World Bank forecasts that the economy will stop contracting this year, posting growth of 2% to 3% until 2025, though it warned of risks such as a reduction in global aid as the Taliban intensifies its repression of women.
“The hard currency controls are working, but the economic, social, and political instability will render this rise in the currency as a short-term phenomenon,” said Kamran Bokhari, an expert in Middle Eastern, Central and South Asian affairs at the Washington-based New Lines Institute for Strategy & Policy, in a news report.
In Afghanistan, foreign exchange is now traded largely via money changers – locally called sarrafs – who put up stalls in markets or operate from shops in cities and villages. The bustling, open-air market Sarai Shahzada in Kabul is the de-facto financial hub of the country, where the equivalent of tens of millions of dollars cross hands every day. There is no limit to trading, according to the central bank.
Because of the financial sanctions, almost all remittances are now transferred to Afghanistan via a centuries-old Hawala money transfer system practiced in regions including the Middle East. Hawala is a key part of the sarrafs’ business.
According to the UN’s financial tracking department, just around $1.1 billion of the anticipated $3.2 billion in aid that Afghanistan needs this year has actually been delivered. The organization spent about $4 billion last year, while 41 million people in Afghanistan were in danger of becoming hungry.