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HomeSouth AsiaAfghanistanAfghanistan's currency is the World's Best-performing currency

Afghanistan’s currency is the World’s Best-performing currency

Afghanistan

Afghanistan’s currency, the Afghani, has claimed the title of the world’s best-performing currency for the September quarter, according to data analysis by Bloomberg.

During this quarter, the Afghani experienced a remarkable surge in value, appreciating by an impressive 9%. This unexpected rise can be attributed primarily to two key factors: a significant influx of humanitarian aid and increased trade activities with neighboring Asian countries.

The Taliban, in an effort to assert control over their nation’s currency, have implemented a series of measures, including the prohibition of the use of US dollars and Pakistani rupees in local transactions. It’s crucial to note that Afghanistan is grappling with immense challenges, with 79% of its population living in poverty, widespread unemployment, two-thirds of households struggling to afford basic necessities, 44% of people lacking access to sufficient food, and the country facing deflation amidst one of the world’s worst human rights records.

As of September 26, the Afghani was trading at approximately 78.25 against the US dollar. According to Bloomberg’s data, the Afghani has seen a remarkable 9% increase in value during the September quarter.

Year-to-date, the Afghani has seen an overall increase of about 14%, placing it third on the global list of best-performing currencies, trailing behind the Colombian peso and the Sri Lankan rupee.

So, what factors are contributing to the Afghani’s unexpected strength?

  1. Ban on Foreign Currencies: The Taliban’s strict measures include banning the use of US dollars and Pakistani rupees in local transactions, along with efforts to restrict the outflow of US dollars from Afghanistan.
  2. Criminalization of Online Currency Trading: Online currency trading has been declared illegal by the Taliban, and severe penalties, including imprisonment, have been threatened against violators.
  3. Humanitarian Aid from the United Nations: Since the Taliban regained power in August 2021, leading to a humanitarian crisis, the United Nations has provided $5.8 billion in aid and development assistance. In 2022, $4 billion was transferred to help the 41 million people in Afghanistan, half of whom were facing life-threatening hunger. However, in the current year, despite an estimated need of approximately $3.2 billion in aid, only about $1.1 billion has been provided so far, revealing a significant funding gap.
  4. Dollar Smuggling: Traders and smugglers have been bringing substantial amounts, up to $5 million, from Pakistan into Afghanistan, providing vital support to the Taliban.

Da Afghanistan Bank, Afghanistan’s central bank, has been auctioning approximately $16 million every week to bolster the Afghani.

Despite the Afghani’s apparent strength in the global currency markets, the nation’s political stability remains a pivotal factor. The fate of the currency is closely tied to the Taliban’s ability to maintain control within the country. Any loss of control by the Taliban could significantly impact the Afghani’s stability.

A report by the United Nations Development Programme (UNDP) forecasts a real GDP growth of 1.3% in 2023 and 0.4% in 2024, with a decline in GDP per capita from US$359 in 2022 to US$345 in 2024. This challenging economic outlook could worsen the situation for Afghans, potentially leading to prolonged extreme poverty if international aid decreases during this period.

In summary, while the Afghani’s recent performance on the global stage is remarkable, Afghanistan’s future remains uncertain, with its currency’s fate closely intertwined with the country’s political stability.

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