It has been nearly five weeks since the Taliban captured Kabul, the Afghan capital, and the economic consequences threaten the cash-strapped country’s banking system.
According to Ajmal Ahmady, former governor of Da Afghanistan Bank, the country’s central bank, about $ 9 billion of the bank’s reserves are held in “safe liquid assets such as treasury bills and gold”. Ahmady also said that assets held in international reserves should be “frozen and inaccessible to the Taliban”.
Nafay Choudhury is a junior scholar at St. Catharine’s College, University of Cambridge and a senior scholar at the Afghan Institute for Strategic Studies. He recently wrote in Foreign Policy on Afghanistan’s informal foreign exchange market and how its role in the economy might change with the new regime.
“Given the instability in the country, money exchangers are going to become very important again playing an important role in meeting financial needs,” Choudhury said.
He spoke with âMarketplaceâ host Kai Ryssdal about the future of banks and money changers in Afghanistan. The following is an edited transcript of their conversation.
Nafay Choudhury: These money exchangers are like miniature banks. They engage in money related activities such as currency exchange. They also deposit money, they transfer money, they extend credit in the form of business loans. So we have a network of thousands of money exchangers operating across Afghanistan. Now we have to remember that only 10-20% of the Afghan population is still banked. The remaining 80-90% are in fact not banked and therefore go to less formal sources. They don’t really go to the banks.
Kai Ryssdal: Law. As you pointed out in this Foreign Policy article, the very first line is that the Taliban entered Kabul at 3 in the afternoon. By 5:30 p.m., you say, they had secured the exchange center. The Taliban therefore know how critical these facilities are.
Choudhury: Absoutely. I mean, during the previous Taliban rule, they relied heavily on the foreign exchange bazaar, and if there is a decrease in banking activity – which one would expect a lot given the instability of the country – money exchangers are going to become very important again playing an important role in meeting financial needs.
Ryssdal: So with the banking system – the formal banking system – in Afghanistan a mess, with foreign aid unlikely for the foreseeable future, with Afghan central bank assets overseas seized by the United States and Western powers , you write that these forex markets and it’s a quote, that they are “the country’s last defense against impending financial disaster”. Explain that a bit.
Choudhury: Yes. Money exchangers are able to operate using their social relationships with individuals, and therefore they are able to grease the economy the way banking institutions, as well as the government, [arenât] able to. So there is a certain level of flexibility that exchangers can have in granting credit, while banks will turn away from credit a lot, given the unpredictability of the country. However, I also stress that money exchangers cannot do this on their own because they do not create money. Rather, they just make it available, and they are able to be flexible in the way they operate with money.
Ryssdal: We received you in Cambridge in London, just outside London. I imagine, however, that you have been on the phone with colleagues, friends and professional contacts in Afghanistan. What is the forex market like there right now?
Choudhury: It’s interesting because there is very little money in circulation at the moment. These exchangers put their money in banks for safekeeping, and so in recent weeks, since the banks have been frozen, it has greatly affected the ability of the exchangers to conduct their own business. This does not mean that the market has collapsed. It just means that business is temporarily in a lull, and exchangers now have to get a little creative in figuring out what are the ways to access our funds and what are the ways we rely on banks and formal institutions to move forward. .
Ryssdal: We imagine that the Afghan economy will eventually stabilize. I wonder, though, what’s your really educated guess, right? Because you’ve been studying it for a long time. How much do you think it will get worse before it stops getting worse, if that makes sense?
Choudhury: So at least in the next six months to a year, we’re going to see a lot of instability in the economy, because a lot of funds are just going to leave the country, so you’re going to see a lot of the banks actually shutting down. Then we’ll start to see some stability in terms of how many exchangers can rely on these banks, if any, and to what extent they are now the only source of credit and financial services available in the country. .