Afghanistan’s currency emerges as world’s best performer this quarter: report

Despite facing global sanctions, Afghanistan’s currency – the afghani – has emerged as the best-performing one this quarter as billions of dollars in humanitarian aid and rising trade with Asian neighbours propelled it to climb around 9% in the said period, reported Bloomberg on Tuesday.

“The ruling Taliban, which seized power two years ago, has also unleashed a series of measures to keep the afghani in a stronghold, including banning the use of dollars and Pakistani rupees in local transactions and tightening restrictions on bringing greenbacks outside the country,” Bloomberg stated in its report.

The Afghan authorities have also barred online trading and threatened to use punitive measures such as imprisonment for those who violate the rules, it added.

As per data compiled by Bloomberg, the afghani has risen around 9% this quarter, outpacing the likes of the Colombian peso’s 3% appreciation.

“The afghani is up about 14% for the year, putting it third on the global list, behind the currencies of Colombia and Sri Lanka,” the report added.

The afghani’s climb comes in stark contrast to its neighbour Pakistan, where the rupee has lost nearly 22% of its value in the ongoing calendar year alone – despite the recent 6% gain this month.

“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,” Kamran Bokhari, an expert in Middle Eastern, Central and South Asian affairs at the Washington-based New Lines Institute for Strategy & Policy, was quoted as saying by Bloomberg.

As per the report, foreign exchange in the landlocked country is being traded largely via money changers.

“The bustling, open-air market Sarai Shahzada in Kabul is the de-facto financial hub of the country, where the equivalent of tens of millions of dollars cross hands every day,” said the report.

Meanwhile, remittances to Afghanistan are being brought into the country via the Hawala system, it added.

“Tightened restrictions on foreign exchange transactions and a very gradual improvement in trade are pushing up demand for the afghani,” said Anwita Basu, head of Europe country risk at BMI in London.

The afghani is likely to stabilise at current levels until the end of the year, Basu was further quoted as saying by Bloomberg.

The report noted that as pressure on Afghani eased, Afghanistan’s central bank has raised the limit for dollar withdrawals to $40,000 per month for businesses from $25,000 and $600 a week for individuals from $200 two years ago.

The development comes as a surprise for many as the landlocked country is witnessing rampant unemployment and two-thirds of houses are struggling to afford basic items and inflation has turned into deflation, according to a World Bank report.