How did Afghanistan’s Currency become the World’s Best Under Taliban Rule?

It’s quite surprising that the Afghani, Afghanistan’s currency, became the world’s best and came to the top of global rankings in the September quarter.

This is happening in a country with 79% of the population living in poverty, widespread unemployment, two-thirds of households struggling to afford basic items, 44% of people not having enough food to eat, inflation has turned into deflation, and one of the world’s worst human rights records.

On September 26, the Afghani was trading at around 78.25 against the US dollar. According to Bloomberg, the Afghani has increased by about 9% this September quarter. 

So far this year, the Afghani is up about 14%, making it the third on the global list, behind Colombian peso and Sri Lankan rupee.

So, how is Afghanistan’s currency getting stronger?

Tightened restrictions on foreign exchange transactions and bringing greenbacks outside the country, along with rising trading activities with Asian neighbours, are pushing up demand for the Afghani. But there are a few other major reasons too, including:

1. Banning the use of foreign currencies 

The Taliban prohibited the use of US dollars and Pakistani rupees in local transactions, along with implementing strict measures to restrict the outflow of US dollars from Afghanistan.

2. Online currency trading is now illegal

Taliban have criminalised online currency trading and have threatened those who violate the rules with severe penalties, including imprisonment.

3. Humanitarian aid by the United Nations

Since the Taliban returned to power in August 2021, which led to a humanitarian crisis in the West Asian country, the UN has assisted with $5.8 billion in the form of aid and development.

Out of this, $4 billion was transferred in 2022, when half of Afghanistan’s 41 million people faced life-threatening hunger.

But this year, even though the UN has estimated that Afghanistan needs about $3.2 billion of aid, they’ve only provided about $1.1 billion so far, highlighting a big gap in funding.

Now, Afghanistan might secure more inflows of foreign currency as the Taliban wants to use the country’s natural resources, including the reserves of Lithium, to attract investments.

4. Smuggling of Dollars

Traders and smugglers are bringing as much as $5 million from Pakistan into Afghanistan, which has also given a lifeline to the Taliban in recent months.

Afghanistan’s central bank, Da Afghanistan Bank, is auctioning about $16 million almost every week to support their currency.

But as of now, the future of Afghanistan is very uncertain! 

A UNDP report predicts real GDP growth of 1.3% in 2023 and 0.4% in 2024, with a decline in GDP per capita from US$359 in 2022 to US$345 in 2024. 

This will make the situation more worse for Afghans, and if international aid decreases during this period, it could result in prolonged extreme poverty lasting for decades.

While the Afghani currency may appear strong on the global stage, their political stability will make or break the currency. And if the Taliban loses control at home, then the currency too will suffer.

Do you think Afghanistan can be a better economic bet than Pakistan?

Written By Shivani Singh

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