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Afghani Runs into Trouble

Worries over hyperinflation increase as the afghani struggles to retain its value in the face of counterfeit notes and a rival currency
By Breshna Nazari

After decades of war and ongoing social crises, Afghans are facing new worries in the form of the country’s steadily devaluing currency.


While the afghani has fared better than currencies in other developing countries - slipping only 40 per cent from around 25,000 to the dollar in 1998 to 35,000 this year - hyperinflation fears are growing following a slide of 15 per cent in the last fortnight.


The country’s central bank openly admits it has no idea how much money is in circulation or who is issuing it, and rumours are rife that many of Afghanistan’s armed factions are printing illegal notes to pay their soldiers.


“Because of the recent fighting, the central bank has lost its control. That is why it is not known how many afghanis have been printed,” central bank governor Anwar ul-Haq Ahady told IWPR.


As well as the illegal printing suspected of taking place in the north of the country, traders speak of seeing far too many piles of new notes. Sometimes, bundles of one hundred 10,000 afghanis can be found in the market with their original binding paper round the middle, showing a print date of only weeks or sometimes even days before.


“The reduction in value of the afghani is directly related to the arrival of huge amounts of money from the north to the exchange markets in Kabul and other provinces,” said Kabul moneychanger Mohammad Aziz.


His colleague Faiz Mohammad told IWPR that he believed some commanders had printed more notes in the run up to the recent Loya Jirga to buy political influence.


While the afghani, or “af” as it is known locally, has fluctuated wildly along with its country’s fortunes, it has begun to even out.


The American-led bombing campaign at the end of 2001 resulted in the currency plummeting to 80,000 to the dollar. The rate rose to 30,000 following the fall of the Taleban and the formation of the interim administration.


However, after a World Bank official casually suggested in a BBC interview that the afghani could be replaced by the dollar, it fell to 45,000, recovering to 32,000 after the interim authority publicly dismissed the idea.


In an attempt to regain control, Ahady has been mooting the idea of creating a new local currency - and this in turn has been sending the market into jitters.


He says it would involve an organised trade-in of existing notes for new ones. But in a country where those in power have often abused their position, the market is worried that such a changeover would be full of opportunities for corruption.


“The central bank should satisfy the public that the present currency will not become useless,” said Ameen Khosti, president of Kabul’s exchange market.


“Before the Loya Jirga people were optimistic. They thought the afghani would go higher, but it did not. Then, people and moneychangers brought their saved bags of money to the market and bought foreign currencies instead, so the ‘af’ lost its balance.”


Afghanistan may be the only country in the world which has an entirely cash economy. The currency is still stable enough for relatively large commercial transactions, although dollars and the Pakistani rupee are also used.


There are no coins and the smallest denomination is a 500 Afghani note - about 1.25 US cents. Few people count notes as fast as Afghan merchants, who can often be seen swapping plastic bags stuffed full of money. One trader said he recently saw a colleague trundling a wheelbarrow piled high with cash down a main road.


While the central bank controls a network of 83 branches around the country, these do not function properly and an agreement to set up an electronic transfer system has yet to be implemented.


The situation is complicated by a separate currency issued in the northern part of the country controlled by the powerful General Abdel Rashid Dostum. The dostum was used widely while the Taleban held the rest of Afghanistan, and has carried a value half that of the afghani in recent months.


No one seems to know how many are in circulation and the central bank has not made clear whether it would recognise this value in a transition to a new currency.


While Ahady would not comment directly on this, it is clear that problems would arise if the financial authorities were to support currency it did not directly control. Such backing could give those in charge of Afghanistan’s mint - whoever they may be - a licence to print money.


If those notes were then converted to hard currency on the open markets, it would further devalue the economy and complicate life for the transitional administration as it tries to lead Afghanistan into a peaceful and prosperous future.


Breshna Nazari is an IWPR trainee journalist in Kabul


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