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Afghans Warn of Currency Slump

After years of relative stability, the afghani appears to be in trouble.
By IWPR

A recent decline in the value of the Afghan currency has been blamed on political uncertainty following the exit of NATO-led forces and the formation of a “national unity government” last year.

Millions of Afghans use US dollars, euro and the banknotes of neighbouring countries in everyday transactions. This is due to a lack of confidence in the national currency, the afghani, even though it has remained mostly stable since it was reintroduced following the fall of the Taleban government in 2001.

Participants in a series of IWPR-organised debates in four provinces warned that an increasing reliance on foreign currency would harm the Afghan economy, already heavily dependent on aid.

In the central province of Ghor, economic expert Jamaluddin Yaqubi said the national economy was heavily reliant on donor funding, so as international interest in Afghanistan waned, the afghani could depreciate significantly.

The afghani’s exchange rate has already dropped from 57 to the dollar to more than 60 to the dollar.

Abdul Ghafur Ghafuri, the head of the Ghor branch of the national Da Afghanistan Bank, was critical of economic management at national government level. He said that to support the Afghan currency, the central bank was trying to prevent the use of foreign currencies for commercial transactions.

Sultan Mohammad, representing Ghor business leaders, said he believed that neighbouring countries were working to destabilise the economic situation in Afghanistan.

“The value of the Afghan currency is falling on a daily basis in border provinces,” he added.

Mohammad warned that Afghanistan’s economy faced a serious threat unless there was a clampdown on the use of foreign currency.

The Pakistani rupee is commonly used in parts of Afghanistan close to Pakistan, while in the west, the Iranian rial often serves as a parallel currency.

In Zabul province, which on borders Pakistan, economist Mohammad Nabi Tasal accused neighbouring states of exploiting Afghan instability to keep their own banknotes in circulation.

In the debate held in Sayed Karam district of Paktia province in southeast Afghanistan, economist Arabuddin Hamdard agreed that neighbouring countries were exploiting political and economic tensions to ensure that the afghani remained weak.

“The value of other countries’ currencies, such as dollars and euro, changes when fuel prices increase, but the explosion of even one roadside bomb in Afghanistan causes its currency to lose value,” he said.

In Parwan province, speakers linked the falling value of the afghani to ongoing security problems and political tensions following the presidential election last year.

President Mohammad Ashraf Ghani formed a government in September 2014 after agreeing a power-sharing deal with his rival Abdullah Abdullah, who was appointed to the new post of “chief executive officer”, akin to prime minister.

Mirza Khan, representing local money changers in Parwan, said that differences in opinion between the president and the chief executive, who both have constituencies to consider, had weakened state monetary policy.

“There are rumours that these two will never get along, and without a doubt this issue has had an impact on the value of the Afghan currency,” he added.

Najibullah Azizi, from the Parwan chamber of commerce, predicted price hikes for food and consumer goods in the near future.

This report is based on an ongoing series of debates conducted as part of the IWPR programme Afghan Reconciliation: Promoting Peace and Building Trust by Engaging Civil Society.