What is the world’s best-performing currency right now? Your first guess might be the US dollar, perhaps the euro, Japan’s yen, or even the British pound. But let me tell you, all of these currencies are being overshadowed by this one, the Afghani.
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The currency of Afghanistan, the Afghani, and it’s the top performer right now. The Afghani has beaten all other currencies. Its value shot up in the month of July and since then it has grown by 9%. This is against the US dollar.
This makes the Afghani, the best-performing currency in this quarter. What about this year? Not too bad. In 2023, its value has increased by 14% so far. The Afghani ranks third in the pecking order, right behind Colombia’s peso and the Sri Lankan rupee.
Now let’s take a closer look at these numbers. After the Taliban’s return, the Afghani had collapsed. At the time, one dollar got you about 104 Afghanis. And what’s the value today? One dollar is worth about 78 Afghanis, so it’s better than the Indian rupee. The currency has made a significant recovery.
And how did this happen? Did the Taliban take a crash course in macroeconomics? Well, certainly not. But when they seized power, they wanted to control the Afghani too. They wanted to control the currency, so they came up with some rules. The Taliban announced a ban.
A ban on the US dollar and the Pakistani rupee. Locals were not allowed to use them and transacting in these currencies was banned. In 2021, all foreign currencies were declared illegal in Afghanistan.
So now the Afghani is the only option for the people there. If you want to buy something from the local markets, that’s what you use, the local currency. Earlier this year, more restrictions kicked in. The Taliban once again targeted the US dollar.
People leaving Afghanistan could only take a certain amount of dollars with them, and the restrictions were very specific. If you’re crossing by the land border, you could take up to $500. If you’re flying out of an airport, you could carry up to $5,000 US dollars. These new rules apply to online trading as well. In 2022, the Taliban banned online forex trading.
And you have to hear the reason for this. The Taliban said forex trading is against Islam. Full marks for creativity. At this rate, the Taliban could give China’s Communist Party a run for their money. And they did not stop at the statement, by the way. They released a video to drive home the point.
It was shared by Afghanistan’s Reserve Bank. It showed two men in a boxing gym while throwing punches. They’re discussing forex trading. And how it’s against the Muslim faith. That’s what they’re discussing here. Now these decisions had a ripple effect.
Foreign currencies became scarce in Afghanistan. Their circulation dried up and people started using the Afghani, which is why its value is increasing. So this is not some masterstroke. The surge will plateau.
But it doesn’t change the fact that Afghanistan’s economic situation is dire. There is rampant unemployment. Two-thirds of the households here cannot make ends meet.
And the Taliban is in no position to help. It doesn’t have a lot of money to start with. How do they run the economy? Mostly through economic aid. The United Nations has tried to help. Since the end of 2021, for a period of 18 months, aircraft carrying large stacks of cash were sent to Afghanistan. Do you know how often these deliveries were made?
Nearly every week. And how much money did the Taliban get? We don’t have an exact number, but going by some claims, the UN delivered up to $40 million every week to Kabul. Why was this money transported in planes?
Because the banks cannot do it. Afghanistan cannot access the global banking system, which is why the cash is moved in planes. And what did the Taliban do with this money? Once it was transported to Kabul, the dollars were converted into the Afghani, that’s the currency of Afghanistan, and then it is released into the market.
Aid and Frozen Assets
So you could say the UN also had a hand in propping up the Afghani. In a way, they’re supplying US dollars and buying Afghanis in exchange. Despite all of this support, the economy is a mess. Before Kabul fell, Afghanistan had at least $9.5 billion in reserves. Now this money is frozen. The US and its allies cut off Kabul’s access in 2021.
It happened right after the democratic government fell. Now recently Washington said it would release some of these funds, but then the plan was put on hold. The US found that Afghanistan’s central bank is not independent.