Not Dollar Or Euro, Afghanistan's Currency Is The World's Best-performing Currency This Quarter

At a time when India's rupee is hovering around its all-time low mark against the US dollar, a report by Bloomberg talks about the best-performing currency of this quarter. And no, it's neither the dollar, the euro, nor the pound.

Which Is The Best Performing Currency?

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Thanks to the billions of dollars from humanitarian aid and rising trade with Asian neighbours, Afghanistan¡¯s currency is sitting at the top of global rankings this quarter, which is an unusual spot for a poverty-stricken country with one of the world¡¯s worst human rights records.

How Afghanistan's Currency Is Gaining Strength

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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. It has made online trading illegal and threatened those who violate the rules with imprisonment.

The currency controls, cash inflows and other remittances have helped the Afghani climb around 9% this quarter, outpacing the likes of the Colombian peso¡¯s 3% gain, data compiled by Bloomberg shows. The Afghani is up about 14% for the year, putting it third on the global list, behind the currencies of Colombia and Sri Lanka overall this year.

Yet the paring of the currency¡¯s losses seen after regime change also belies the dramatic upheaval that persists on the ground with Afghanistan largely cut off from the global financial system because of sanctions.

Unemployment is rampant, two-thirds of households struggle to afford basic items and inflation has turned into deflation, according to a report. Planeloads of US dollars arrived almost weekly from the United Nations to support the poor, some of up to $40 million, for at least 18 months since the end of 2021.

¡°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,¡± said Kamran Bokhari, an expert in Middle Eastern, Central and South Asian affairs at the Washington¡ªbased New Lines Institute for Strategy & Policy, as per Bloomberg.

Also Read: How Rupee Stands Against World's 10 Strongest Currencies

How Foreign Exchange Is Being Traded In Afghanistan

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In Afghanistan, foreign exchange is now traded largely via money changers - locally called sarrafs - who put up stalls in markets or operate from shops in cities and villages. 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. There is no limit to trading, according to the central bank.

Because of the financial sanctions, almost all remittances are now transferred to Afghanistan via a centuries-old Hawala money transfer system practised in regions including the Middle East. Hawala is a key part of the sarrafs¡¯ business.

What The Future Holds For The Afghanistan Economy?

As per the report the UN, which estimated that Afghanistan needs about $3.2 billion of aid this year, has deployed about $1.1 billion of that, according to the world body¡¯s financial tracking service. Last year, the organization spent around $4 billion as half of Afghanistan¡¯s 41 million people faced life-threatening hunger. The World Bank forecasts that the economy will stop contracting this year, posting growth of 2% to 3% until 2025, though it warned of risks such as a reduction in global aid as the Taliban intensifies its repression of women.

The Taliban-ruled nation had also introduced new currency notes last year.

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The afghani (??????? ??????) is the currency of Afghanistan, which traditionally is issued by the nation's central bank called Da Afghanistan Bank. pic.twitter.com/EHjuHm0Kg8

¡ª Visit Afghanistan ?? (@VisitAFG) January 26, 2022

¡°Tightened restriction on foreign exchange transactions and a very gradual improvement in trade is pushing up demand for the afghani,¡± said Anwita Basu, head of Europe country risk at BMI in London. The afghani is likely to stabilize at current levels until the end of the year, she said. A stronger currency can help curb inflation pressure for critical imports for Afghanistan such as oil, particularly as crude prices approach $100 a barrel.

On the other hand, the cash-strapped Taliban administration is seeking investment into the country¡¯s rich resources, including lithium, which are totally estimated to be worth as much as $3 trillion. Chinese, British, and Turkish companies were involved in $6.5 billion of contracts given out this month to build large-scale iron, ore and gold mines. The Taliban also inked a deal in January with a Chinese company for oil extraction.

Meanwhile, dollars being smuggled into Afghanistan from Pakistan have also given a lifeline to the Taliban in previous months. Da Afghanistan Bank, the country¡¯s central bank, is auctioning up to $16 million almost every week to support the currency, said spokesman Hassibullah Noori.

Also Read: How RBI Creates & Distributes Indian Rupee Banknotes

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