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In an unexpected turn of events, the Afghan Afghani has become the world's best-performing currency this quarter, surging by approximately 9 percent, outpacing even the Colombian peso, which gained 3 percent during the same period, according to data compiled by Bloomberg.
This remarkable ascent can be attributed to a combination of factors, including the influx of billions of dollars in humanitarian aid and increased trade with neighboring Asian countries. Notably, Afghanistan, despite its dire poverty and one of the world's worst human rights records, has managed to secure this prominent position.
The Taliban, in power for the past two years, has implemented various measures to maintain control over the Afghani. These measures include a ban on the use of US dollars and Pakistani rupees in local transactions, stringent regulations on taking US dollars out of the country, and the prohibition of online trading, with violators facing the threat of imprisonment.
The Afghani's impressive performance is not limited to this quarter; it has also appreciated by about 14 percent over the course of the year, ranking it third globally behind the Colombian peso and the Sri Lankan rupee.
However, this seemingly positive development in the currency's value masks the ongoing crisis within Afghanistan, where the country remains largely isolated from the global financial system due to international sanctions. The population faces rampant unemployment, with two-thirds of households struggling to afford basic necessities. Inflation has taken a turn for the worse, transitioning into deflation, as reported by the World Bank. To alleviate these hardships, the United Nations has been sending planeloads of US dollars to support the impoverished, with some aid packages reaching up to $40 million, a practice in place for at least 18 months since the end of 2021.
Kamran Bokhari, an expert in Middle Eastern, Central, and South Asian affairs at the Washington-based New Lines Institute for Strategy & Policy, cautions that while the strict currency controls appear to be effective, the prevailing economic, social, and political instability may limit the Afghani's rise to a short-lived phenomenon.
Furthermore, the influx of US dollars smuggled into Afghanistan from Pakistan has provided a lifeline to the Taliban in recent months. The country's central bank, Da Afghanistan Bank, is regularly auctioning off up to $16 million each week to support the Afghani, according to spokesman Hassibullah Noori. As pressure on the currency has eased, the central bank has also raised the limit for dollar withdrawals to $40,000 per month for businesses, up from $25,000, and to $600 per week for individuals, an increase from $200 two years ago. As of Monday, the Afghani was trading at around 78.50 per US dollar.
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