Afghan central banker sees currency decline, capital controls to come

Afghanistan’s new Taliban-led government faces a series of shocks that will likely lead to a weaker currency, faster inflation and capital controls, according to the country’s exiled central bank chief.

The Afghani, as the tender is known, will likely experience further weakness after hitting a record high last week, Ajmal Ahmady, governor of Da Afghanistan Bank, known as DAB, said in a statement. interview for Bloomberg’s Odd Lots podcast. This could stimulate a resumption of consumer price increases by making imports more expensive, he said.

With the vast majority of central banks over $ 9 billion in frozen assets by the United States, Afghanistan faces a potential economic crisis, Ahmady said. This is in addition to Covid-19, a regional drought and displaced people who were already creating difficulties.

“It’s a really difficult situation,” Ahmady said by telephone from an undisclosed location where he fled when the government fell. “We were trying to deal with three shocks, and now I think they’re going to have to deal with a fourth.”

Ahmady, 43, graduated from Harvard University and briefly worked in the US Treasury Department as an economist.

As the United States prepares to complete the military withdrawal that led President Ashraf Ghani to flee to the United Arab Emirates as the Taliban entered Kabul, the Afghan economy and banking sector are in tatters. Nearly three-quarters of the country’s roughly 40 million citizens live in rural areas, while the majority of lenders are in the three major cities, according to World Bank data.

Afghan currency is not accepted for cross-border trade, leaving the nation dependent on US dollars and an informal transfer system known as hawala. The age-old trust-based method of transferring cash that underpinned international trade in the Middle East and South Asia before the advent of modern banking remains a central feature of life in Afghanistan.

The International Monetary Fund said last week that the new government to cut to use the fund’s reserve assets to be allocated to its 190 member countries on Monday, depriving the Taliban of nearly $ 500 million.

The Taliban “will probably try to travel to other countries to replace the United States, and perhaps China, Pakistan or other countries in the region to find sources of funding,” Ahmady said. “But it’s a difficult situation.”

Ahmady said he believes the Afghan people are very disappointed with the United States and the nation’s willingness to negotiate a deal with the Taliban. The deal that the Trump administration struck in Doha, without the involvement of the Afghan government, gave legitimacy to the Taliban, was the wrong approach and paved the way for the group’s return to power, he said.

“It would have been better if the United States had just left and said, ‘We’re not here anymore, we’re leaving and we are withdrawing our troops,’” Ahmady said. “Instead, there was an agreement that was continued and signed in which they discredited the Afghan government, into which they came and forced the Afghan government to release 5,000 prisoners, some of whom were Taliban, some were murderers, some of whom were major drug dealers.

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