The currency of Afghanistan, the afghani, has surprised many by becoming the world’s best-performing currency this quarter, according to data compiled by Bloomberg. The afghani rose by nine percent in value during this period, mainly driven by the inflow of billions of dollars in humanitarian aid and increased trade with neighbouring Asian countries.
The afghani’s rise comes amid the Taliban’s takeover of Afghanistan two years ago, which has imposed several measures to control its currency. The Taliban have banned the use of dollars and Pakistani rupees in local transactions and have restricted the movement of US dollars out of the country. They have also outlawed online trading, threatening to imprison those who violate these rules.
However, Afghanistan remains a poor and troubled country with one of the worst human rights records in the world. Despite the afghani’s 14 percent increase in value over the year, ranking third globally behind Colombia and Sri Lanka.
Afghanistan is largely cut off from the global financial system due to international sanctions. A World Bank report highlights the grim situation, with high unemployment, two-thirds of households unable to afford basic necessities, and inflation giving way to deflation.
To ease some of the economic hardships, the United Nations has been sending regular flights of US dollars, totalling up to $40 million, to support the poor for at least 18 months since late 2021.
In Afghanistan, foreign exchange is now traded mostly by money changers, called sarrafs, who set up stalls in markets or run their businesses out of shops in cities and villages. Millions of dollars are exchanged daily in the bustling open-air market known as Sarai Shahzada in Kabul, which serves as the country’s unofficial financial hub. The central bank has stated that there are no trading restrictions.
Due to financial sanctions, most remittances to Afghanistan now rely on the Hawala money transfer system. Sarrafs’ business largely depends on this system. The United Nations estimates that Afghanistan needs about $3.2 billion in assistance this year, but only $1.1 billion has been provided, according to the international organisation’s financial tracking agency.
