If we follow the quarterly data from the American agency Bloomberg, with an appreciation of almost 10% against the dollar, the Afghan closes the third quarter ahead of the Colombian peso. Throughout the year, Afghanistan’s currency is one of the three that has had the greatest increases in the world, along with those of Colombia and Sri Lanka.
Of course, this does not at all mean that currency traders, specialists in exchange operations between different currencies, in New York, London or Tokyo will suddenly appropriate the currency of one of the poorest nations in the world. But this amazing performance deserves an explanation.
Various explanatory factors
The immediate explanation is, first of all, the flows of international aid to this bloodless economy, the only one outside the African continent that, in per capita purchasing power parity, is among the ten most disadvantaged in the world. However, since the Taliban regained power in the summer of 2021, the United Nations has contributed €5.5 billion.
Afghanistan, still subject to various sanctions, remains largely isolated from international financial circuits. But in addition to the UN money, local currency exchange traders see the money their compatriots abroad send home to their families. And another key to understanding this increase in Afghans is that charitable foundations in the Gulf countries are starting to help again.
There is also the orthodoxy of the Taliban’s monetary and exchange policies. Transfer control is strict. Authorities have banned the use of any foreign currency in trade, including neighboring Pakistan’s rupee. Therefore, physical currency movements are restricted and online currency transactions are prohibited. Under these conditions, domestic demand can only be transferred to the national currency.
GDP drop of 20% in two years
The central bank of 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, thanks to this, the Afghan is “widely accepted as a stable currency.”
In any case, it seems surprising that, in recent days, numerous media outlets in India and Pakistan give credence to this version, although since the victory of the Taliban the gross domestic product has plummeted by 20%. But the new regime suggests that this precipitous decline has already stopped.
In a report, the World Bank admits, in any case, beginnings of control in Kabul at the macroeconomic level. Growth in 2024 seems possible, in a context where inflation is falling, in particular thanks to this favorable exchange rate effect. The international financial institution notes a certain normality in the timely payment of salaries of public officials and in the transit of formal salaries through banking establishments. Acting Economy Minister Din Mohammad Hanif praised the document as an “accurate representation of the facts.”
The challenge of attracting foreign capital
The goal in Kabul now is to convince outside capital to venture there. To do this, Taliban leaders have chosen to revive the history of the Afghan mining Eldorado, beyond these immense legal, industrial and logistical obstacles. In late 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 advisor to the Afghan government told the Qatari channel Al Jazeera that these projects are “about to reinforce the entry of foreign currency into the country,” since, according to him, each of these seven mines “can boast of having European and Asian partners.” . . A former senior official in the Ministry of Mines refuses to give credence to this statement, given, according to him, the “absence of transparency” in relation to 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 in Kabul. And on September 29 in Kazan (Russia) joint talks began with Russians, Chinese, Indians, Iranians and Pakistanis, both on full recognition and on trade normalization. The process is just beginning.
Source: BFM TV
