Despite facing international sanctions, Afghanistan currency, the afghani, has defied expectations by emerging as the top-performing currency of the September quarter, according to data analysis by Bloomberg.
Bloomberg’s report highlighted that the Taliban, who took control of Afghanistan two years ago, have implemented several measures to maintain control over the afghani. These measures include prohibiting the use of US dollars and Pakistani rupees in local transactions and imposing stricter restrictions on taking US dollars out of the country. Online trading has also been banned, with severe penalties, including imprisonment, for rule violations.
Bloomberg’s data shows that the afghani has appreciated by approximately 9% in the current quarter, surpassing the 3% increase seen in the Colombian peso.
The report added that the afghani has gained roughly 14% throughout the year, making it the third-best performing currency globally, behind the Colombian peso and Sri Lankan rupee.
In stark contrast, Afghanistan’s neighbor Pakistan has witnessed its rupee losing nearly 22% of its value in the current calendar year, despite a recent 6% gain this month.
Kamran Bokhari, an expert in Middle Eastern, Central, and South Asian affairs at the New Lines Institute for Strategy & Policy in Washington, commented on the situation, saying that while the hard currency controls are effective, the economic, social, and political instability in Afghanistan could render the currency’s rise a short-term phenomenon.
Foreign exchange transactions in Afghanistan primarily occur through money changers, with Kabul’s Sarai Shahzada market serving as the country’s de-facto financial hub, facilitating transactions worth tens of millions of dollars daily.
Remittances to Afghanistan are channeled through the Hawala system, the report added.
Anwita Basu, Head of Europe Country Risk at BMI in London, explained that tightened restrictions on foreign exchange transactions and a gradual improvement in trade are driving up demand for the afghani. She also predicted that the afghani is likely to remain stable at its current levels until the end of the year.
The report noted that as pressure on the afghani has eased, Afghanistan’s central bank has increased the monthly limit for dollar withdrawals to $40,000 for businesses (up from $25,000) and the weekly limit for individuals to $600 (up from $200 two years ago).
This surprising performance of the afghani comes amidst widespread unemployment in the country, with two-thirds of households struggling to afford basic necessities, and inflation giving way to deflation, as reported by the World Bank.