JURIST EXCLUSIVE – Law students and lawyers in Afghanistan are filing reports with JURIST on the situation there after the Taliban takeover. Here, a Staff Correspondent for JURIST in Kabul offers his observations on a looming economic crisis in Afghanistan as banks continue to run out of foreign exchange reserves, contributing to a rapid decline in the value of the local currency. For privacy and security reasons, we are withholding his name and institutional affiliation. The text has been only lightly edited to respect the author’s voice.
The value of Afghanistan’s currency, the Afghani, decreased against the US dollar Sunday. As of Monday, the exchange rate was 1 to 95—an increase of AFN 6 per dollar in comparison to yesterday. The commercial banks have complained to the nation’s central bank about running out foreign exchange reserves, particularly US dollars.
The central bank has resumed US dollar auctions again and the first auction for sale of dollars to commercial banks and other financial institutions will be conducted Tuesday. The central bank is trying to increase the value of the Afghani by infusing US dollars in the market, but this is counterintuitive as the bank does not have sufficient dollars to begin with.
In the former government, dollar auctions had to be done three times a week and the central bank was infusing US $20-$40 million into the market each week. However, this is the first time such an auction is being conducted since the Taliban seized power. The central bank announced that the next auction will involve US $10 million, but based on experience with the previous government, that figure is highly likely to be much lower.
The central bank has not made any official announcement on whether this auction practice will be resumed on a long-term basis, but the drop in the value of the Afghani against the dollar over the last two days has stepped up the pressure to conduct a sale right now. Traders and businesses are facing similar problems associated with the decline of the Afghani and insufficiency of foreign exchange reserves in international transactions, which in turn is contributing to inflation.
