Billions of dollars in cash aid and rising trade with neighboring countries have helped propel Afghanistan’s currency, the afghani (AFN), to top spot in the global rankings this quarter.
A nine percent gain in the last quarter has put Afghanistan ahead of other countries, which is an unusual position for a poverty-stricken country, Bloomberg’s latest data shows.
In addition to the cash aid, remittances, increased transborder trade and tight currency controls by the Taliban have also added to the afghani’s stability.
The Taliban has enforced a number of measures over the past two years to preserve the afghani, including the ban on using Pakistani rupees and US dollars for local transactions, tightening of restrictions on taking dollars out of the country, banning online trading and threatening to imprison anyone who breaks these rules.
Overall, the afghani is up about 14 percent for the year, putting it third on the global list, behind the currencies of Colombia and Sri Lanka.
However, the stability of the afghani has not done much to help ease the humanitarian crisis in the country, where millions of people rely on aid to survive.
Plane loads of cash have been flown into the country, delivering around $40 million each week to the United Nations. This money has been used to help alleviate the humanitarian crisis.
Speaking to Bloomberg, Kamran Bokhari, an expert in Middle Eastern, Central and South Asian affairs at the Washington-based New Lines Institute for Strategy & Policy said: “The hard currency controls are working, but the economic, social and political instability will render this rise in the currency as a short-term phenomenon.”
In addition to the cash aid and tight controls, the Taliban-run Da Afghanistan Bank, the country’s central bank, also auctions off about $16 million almost every week, which helps support the currency.
On Tuesday, Sept 26, the afghani was trading at just under 80 AFN to the US dollar.
However, concerns continue to be raised over the smuggling of US dollars into Afghanistan from Pakistan.
The Pakistani rupee has over the past year weakened significantly against the dollar amid depleting foreign exchange reserves, increasing demand for import payments, and the continuing flow of dollars to neighboring Afghanistan.
On Monday, Arab News reported that Zafar Sultan Paracha, the general secretary of the Exchange Companies Association of Pakistan (ECAP) said: “There is substantial flow of dollar to Afghanistan through smuggling.”
Paracha added that the buying of the dollar to send to Afghanistan was mainly taking place in the black market where the exchange rate was as low as Rs255, Rs21 below the prevailing selling rate.