Afghanistan's banking system on verge of collapse, warns UNDP report

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Afghanistan's banking system on verge of collapse, warns UNDP report

 Updated on Nov 23, 2021 06:52 AM IST

The report said that Afghanistan's total banking system deposits fell to USD 2 billion in September from USD 2.8 billion at the end of 2020.

Afghanistan's total credits fell to USD 307 million in September from USD 33 billion at the end of last year. In picture - Afghan money exchange dealers wait for customers at a money exchange market

 

A new UN report on Monday said Afghanistan's banking and financial systems are on the verge of collapse following the country's takeover by the Taliban.

"Afghanistan's financial and bank payment systems are in disarray," the report by UN Development Program (UNDP) said. "The bank-run problem must be resolved quickly to improve Afghanistan's limited production capacity and prevent the banking system from collapsing."

Soon after the Taliban assumed power in Kabul, the United States froze Afghanistan's international reserves. This has led to a dramatic shock in the country's financial and payment systems.

Currently, the country's central bank could not meet deposit demands, prompting the Taliban to impose withdrawal caps of a maximum of USD 200 per week. The amount was recently increased to USD 400, Sputnik reported.

The report said that Afghanistan's total banking system deposits fell to USD 2 billion in September from USD 2.8 billion at the end of 2020.

With the current pace and withdrawal restrictions, deposits are projected to fall to USD 1.7 billion by the end of 2021, likely leading to the collapse of Afghanistan's banking sector, the report said.

"Without the banking sector, there's no humanitarian solution for Afghanistan," UNDP Resident Representative Abdallah Al Dardari said. "Do we really want to see Afghans completely isolated?"

In addition, the country's credit market is also in decline. Total credits fell to USD 307 million in September from USD 33 billion at the end of last year.

To prevent the collapse of the country's banking system, UNDP urged for prompt and decisive action, which includes deposit insurance for depositors, adequate liquidity for the banking system and credit guarantees and loan repayment delay options. (ANI)

link  :  https://www.hindustantimes.com/world-news/afghanistans-banking-system-on-verge-of-collapse-warns-undp-report-101637628608710.html

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Afghanistan's banking sector is nearing collapse, UN warns

By Shabtai Gold // 22 November 2021

A man rides a bike in front of a bank in Kabul, Afghanistan

 

Afghanistan’s banking system is in a deep crisis and risks collapse, according to a report released by the United Nations Development Programme on Monday.

 

“The economic cost of a banking system collapse, with its concomitant negative social consequences, would be colossal,” the report warned. UNDP stressed that a functional banking system is vital for the continuation of many humanitarian programs.

“Without the banking sector, there’s no humanitarian solution for Afghanistan,” said Abdallah al-Dardari, UNDP resident representative in Afghanistan, in a statement.

Cut off: Since the Taliban takeover of Afghanistan in August, the country has largely been cut off from much of the global financial system, and assets abroad were frozen. International sanctions have contributed to a severe cash crisis. UNDP said the conditions created “a perfect bank-run scenario.”

Bank deposits fell from $2.9 billion last year to $2 billion in September, and a further deterioration is expected, UNDP said. This is compounded by credit markets freezing, as nonperforming loans spiked from about 30% in 2020 to 57% in September.

Humanitarian impact: The humanitarian sector’s $606 million “flash appeal” for Afghanistan is now fully funded, the U.N. Office for the Coordination of Humanitarian Affairs said separately, but the financial crisis is getting in the way.

“While humanitarians remain grateful for the generous contribution by the donor community, all commitments have not been translated to actions on the ground as partners continue to face financial system challenges amid the cash and liquidity crisis,” OCHA said.

The U.N. called for “blanket humanitarian exemptions” from sanctions for humanitarians and their interlocutors. This includes finding ways to facilitate payments.

Record hunger: Food insecurity is getting worse, with the U.N. saying a “record” 22.8 million people — more than half of Afghanistan’s population — will require assistance through March 2022. This marks an increase of about 35% from the same period last year, according to OCHA.

 

link  :  https://www.devex.com/news/afghanistan-s-banking-sector-is-nearing-collapse-un-warns-102165

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UN warns of 'colossal' collapse of Afghan banking system

NOV 22, 2021 10:10 PM PHT

 

UNITED NATIONS

'We are in such a dire situation that we need to think of all possible options and we have to think outside the box,' says the head of the United Nations Development Programme in Afghanistan

The United Nations on Monday, November 22, pushed for urgent action to prop up Afghanistan's banks, warning that a spike in people unable to repay loans, lower deposits, and a cash liquidity crunch could cause the financial system to collapse within months.

In a three-page report on Afghanistan's banking and financial system seen by Reuters, the UN Development Programme (UNDP) said the economic cost of a banking system collapse – and consequent negative social impact – "would be colossal."

An abrupt withdrawal of most foreign development support after the Taliban seized power on August 15 from Afghanistan's Western-backed government has sent the economy into free fall, putting a severe strain on the banking system which set weekly withdrawal limits to stop a run on deposits.

"Afghanistan's financial and bank payment systems are in disarray. The bank-run problem must be resolved quickly to improve Afghanistan's limited production capacity and prevent the banking system from collapsing," the UNDP report said.

Finding a way to avert a collapse is complicated by international and unilateral sanctions on Taliban leaders.

"We need to find a way to make sure that if we support the banking sector, we are not supporting Taliban," Abdallah al Dardari, head of UNDP in Afghanistan, told Reuters.

"We are in such a dire situation that we need to think of all possible options and we have to think outside the box," he said. "What used to be three months ago unthinkable has to become thinkable now."

Afghanistan's banking system was already vulnerable before the Taliban came to power. But since then development aid has dried up, billions of dollars in Afghan assets have been frozen abroad, and the United Nations and aid groups are now struggling to get enough cash into the country.

 

link  :  https://www.rappler.com/business/united-nations-warning-colossal-collapse-afghanistan-banking-system

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'Under the mattress'

The UNDP's proposals to save the banking system include a deposit insurance scheme, measures to ensure adequate liquidity for short- and medium-term needs, as well as credit guarantees and loan repayment delay options.

"Coordination with the international financial institutions, with their extensive experience of the Afghan financial system, would be critical to this process," UNDP said in its report, referring to the World Bank and International Monetary Fund.

The United Nations has repeatedly warned since the Taliban took over that Afghanistan's economy is on the brink of a collapse that would likely further fuel a refugee crisis. UNDP said that if the banking system fails, it could take decades to rebuild.

The UNDP report said that with current trends and withdrawal restrictions, about 40% of Afghanistan's deposit base will be lost by the end of the year. It said banks have stopped extending new credit, and that non-performing loans had almost doubled to 57% in September from the end of 2020.

"If this rate continues of non-performing loans, the banks may not have a chance to survive in the next six months. And I am being optimistic," al Dardari said.

Liquidity has also been a problem. Afghan banks heavily relied on physical shipments of US dollars, which have stopped. When it comes to the local afghani currency, al Dardari said that while there is about $4 billion worth of afghanis in the economy, only about $500,000 worth is in circulation.

"The rest is sitting under the mattress or under the pillow because people are afraid," he said.

As the United Nations seeks to avert famine in Afghanistan, al Dardari also warned about the consequences of a banking collapse for trade finance.

"Afghanistan last year imported about $7 billion worth of goods and products and services, mostly foodstuff.... If there is no trade finance the interruption is huge," he said. "Without the banking system, none of this can happen." 

 

link  :  https://www.rappler.com/business/united-nations-warning-colossal-collapse-afghanistan-banking-system

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Afghanistan’s banking system could collapse if not resolved quickly, warns UN

The United Nations Development Programme pushed for urgent action to prop up Afghanistan's banking sector due to worsening liquidity problems and a rise in non-performing loans.

ELTAF NAJAFIZADA 22 November, 2021 6:50 pm IST

A Taliban fighter walks in front of people sitting along a road outside a bank waiting to withdraw money in Kabul, on 4 September, 2021

 

New Delhi: The United Nations Development Programme warned Monday that Afghanistan’s banking sector risked collapse due to worsening liquidity problems and a rise in non-performing loans, potentially adding further pain to its growing humanitarian crisis.

“Afghanistan’s financial and bank payment systems are in disarray,” the UNDP said in the report. A run on bank deposits “must be resolved quickly to improve Afghanistan’s limited production capacity and prevent the banking system from collapsing.”

A looming banking crisis adds to the woes of Afghanistan’s collapsing economy since the Taliban retook control of the country more than three months ago. It also comes as the Taliban’s foreign minister, Amir Khan Muttaqi, renewed calls on the U.S. to release the frozen funds of some $9 billion or risk triggering a mass refugee exodus.

The head of UNDP in Afghanistan, Abdallah al Dardari, said another key challenge is the loss of trade finance capacity given that “a large part of the food imports are financed through the banking system.” The UN and international NGOs need a functioning banking sector to bring in financial aid to address the humanitarian situation, he told Bloomberg News in an interview.

The World Food Program earlier said more than half the country’s population face acute hunger. Al Dardari said that Afghanistan will face rampant starvation unless the international community takes urgent action to help with the financial sector.

According to the UNDP’s analysis, the ratio of non-performing loans rose to 57% in September, from 30% at the beginning of the year, while total banking deposits are expected to end 2021 at 165 billion afghanis ($1.8 billion), a 40% drop from a year ago.

“Under current conditions, the NPL ratio appears to be increasing, which will likely lead to the collapse of MSMEs and the banking sector,” the UNDP said in the report, using the acronym for micro, medium and small enterprises. 

 

link  :  https://theprint.in/world/afghanistans-banking-system-could-collapse-if-not-resolved-quickly-warns-un/770079/

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Unpaid Afghan diplomats struggle to hold fort, ensure ‘business as usual’ at embassies

No country has recognised the Taliban dispensation in Kabul, but Afghan diplomats are operating on their own, offering consular services for their people living abroad.

NAYANIMA BASU 22 November, 2021 9:22 am I

A file photo of the Afghan embassy in New Delhi | Photo: Facebook/Embassy of the Islamic Republic of Afghanistan-New Delhi

 

New Delhi: On the surface, it is business as usual. Embassies of Afghanistan in most parts of the world are functioning just like they did before Kabul fell to the Taliban on 15 August.

But inside, a different story is unfolding.

 

Not a single country has legitimised the new dispensation in Kabul, but diplomats are operating on their own, offering consular services to Afghans living abroad.

However, with Afghanistan on the brink of an economic collapse following the Taliban takeover, these diplomats who were appointed by the former Ashraf Ghani government, are living a dystopian life.

They haven’t been paid salaries for five months. There is no formal foreign ministry they report to, no minister to run the show, and, apart from salaries, there are no perks or privileges that come with the job, besides vanishing prospects of career growth.

 

Moreover, while some of them are seeking asylum in the US, Canada and Australia, others are waiting for the resistance movement to start.

At the Embassy of Afghanistan in New Delhi, consular services are being carried out for the thousands of Afghan refugees and asylum seekers as well as the expat community living here in India for higher studies, according to a former Afghan diplomat who refused to be identified.

The Afghan embassy, located in one of the national capital’s most prime locations, wears a desolate look while people can be seen queuing up at the main gate. The former national flag of Afghanistan, replaced in the country by the Taliban banner, flutters atop the building.

 

“We are committed to run the embassy as many of our people are here and they need help. We will continue to work and not think about what has happened back in our country but I believe eventually we all will have to leave,” said a Delhi-based Afghan diplomat who didn’t wish to be named.

According to another Afghan diplomat, the embassy in New Delhi, which boasted a nearly 22-strong diplomatic staff, now has around five-seven members as many have left India since the fall of Kabul. Some left for countries such as the UK, Turkey and other European nations, where their families are living, while some have sought asylum in Australia, Canada and the US.

The embassy in India continues to have its own emblem, logo and other stationery while a portrait of former Afghan President Ashraf Ghani, who fled Kabul the day it was overrun by the Taliban, continues to adorn the walls.

 

After establishing an interim government in Kabul, the Taliban held a video-conference with some of the missions located around the world in September, but the majority of them skipped it, according to Afghan diplomatic sources. While the message was given to them loud and clear, these missions refused to consider the new regime as their government.

The diplomat quoted above said they believe the resistance movement spearheaded by Ahmad Massoud, leader of National Resistance Front of Afghanistan and son of slain legendary Afghan fighter Ahmad Shah Massoud, will begin in 2022 and a decision will be taken then.

Since the Taliban took control over Panjshir valley, Massoud is believed to be traveling around the world to garner support for his resistance movement. He is currently believed to be in Tajikistan.

 

link  :  https://theprint.in/diplomacy/unpaid-afghan-diplomats-struggle-to-hold-fort-ensure-business-as-usual-at-embassies/769436/

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Unpaid Afghan diplomats struggle to hold fort, ensure ‘business as usual’ at embassies

No country has recognised the Taliban dispensation in Kabul, but Afghan diplomats are operating on their own, offering consular services for their people living abroad.

NAYANIMA BASU 22 November, 2021 9:22 am I

A file photo of the Afghan embassy in New Delhi | Photo: Facebook/Embassy of the Islamic Republic of Afghanistan-New Delhi

 

New Delhi: On the surface, it is business as usual. Embassies of Afghanistan in most parts of the world are functioning just like they did before Kabul fell to the Taliban on 15 August.

But inside, a different story is unfolding.

 

Not a single country has legitimised the new dispensation in Kabul, but diplomats are operating on their own, offering consular services to Afghans living abroad.

However, with Afghanistan on the brink of an economic collapse following the Taliban takeover, these diplomats who were appointed by the former Ashraf Ghani government, are living a dystopian life.

They haven’t been paid salaries for five months. There is no formal foreign ministry they report to, no minister to run the show, and, apart from salaries, there are no perks or privileges that come with the job, besides vanishing prospects of career growth.

 

Moreover, while some of them are seeking asylum in the US, Canada and Australia, others are waiting for the resistance movement to start.

At the Embassy of Afghanistan in New Delhi, consular services are being carried out for the thousands of Afghan refugees and asylum seekers as well as the expat community living here in India for higher studies, according to a former Afghan diplomat who refused to be identified.

The Afghan embassy, located in one of the national capital’s most prime locations, wears a desolate look while people can be seen queuing up at the main gate. The former national flag of Afghanistan, replaced in the country by the Taliban banner, flutters atop the building.

 

“We are committed to run the embassy as many of our people are here and they need help. We will continue to work and not think about what has happened back in our country but I believe eventually we all will have to leave,” said a Delhi-based Afghan diplomat who didn’t wish to be named.

According to another Afghan diplomat, the embassy in New Delhi, which boasted a nearly 22-strong diplomatic staff, now has around five-seven members as many have left India since the fall of Kabul. Some left for countries such as the UK, Turkey and other European nations, where their families are living, while some have sought asylum in Australia, Canada and the US.

The embassy in India continues to have its own emblem, logo and other stationery while a portrait of former Afghan President Ashraf Ghani, who fled Kabul the day it was overrun by the Taliban, continues to adorn the walls.

 

After establishing an interim government in Kabul, the Taliban held a video-conference with some of the missions located around the world in September, but the majority of them skipped it, according to Afghan diplomatic sources. While the message was given to them loud and clear, these missions refused to consider the new regime as their government.

The diplomat quoted above said they believe the resistance movement spearheaded by Ahmad Massoud, leader of National Resistance Front of Afghanistan and son of slain legendary Afghan fighter Ahmad Shah Massoud, will begin in 2022 and a decision will be taken then.

Since the Taliban took control over Panjshir valley, Massoud is believed to be traveling around the world to garner support system" rel="">support for his resistance movement. He is currently believed to be in Tajikistan.

 

link  :  https://theprint.in/diplomacy/unpaid-afghan-diplomats-struggle-to-hold-fort-ensure-business-as-usual-at-embassies/769436/

Salaries not a priority, work must go on’

Tahir Qadiry, who still holds the position of Afghanistan’s Ambassador in Poland, told ThePrint that the diplomats’ situation also depends on the host country and how they treat foreign envoys who face such a crisis back home.

Qadiry was posted in India between 2019 and early 2021 and served as Chargé d’affaires at the New Delhi embassy.

“The Afghan Embassy in Poland has been functioning like normal. We did not close down even for a day. The host country has been very supportive throughout and we are delivering all kinds of consular services, working every day to help those Afghans who have been evacuated or those who live in this region with their documentation issues,” said Qadiry.

“Humanitarian crisis in Afghanistan is another serious issue. We are concerned at this moment and are advocating to draw more support. As always, our priority is how we can represent the people of Afghanistan, be their voices and help those in dire need of help at this difficult moment,” he added.

Qadiry said while the situation in Afghanistan is unfortunate, diplomats posted abroad owe it to the people back home.

“We are the envoys who have presented our credentials to the host countries. The ongoing situation in Afghanistan is very unfortunate. All of us are indebted to our nation, to that country, to that soil, we owe it to our people. Salaries are not a priority when you have bigger duties to deliver at a critical moment,” he said.

“We own the embassy’s building, and we have taken several cost-cutting measures to keep the mission functioning. Our sole focus remains on providing consular services to our people as they are going through a difficult time,” he added.

Meanwhile, the host countries are also facing a dilemma of sorts. On the one hand, they have not recognised the Taliban, and on the other, they are compelled to have dialogue with them.

India has had a dialogue with the Taliban after Kabul’s fall in Doha as well as in Moscow in order to offer humanitarian aid and assistance. Some of the countries are also tacitly supporting the resistance movement and continue to support the diplomats from the former government posted in their respective countries.

Taliban’s moves with foreign missions

In the absence of international recognition and legitimacy, the Taliban continues to act as if everything is operating normally like before, diplomatic sources told ThePrint. Kabul continues to send memos, press releases, important announcements to all its diplomatic missions but the embassies and consulates continue to reject them.

However, the Taliban government is not paying the salaries to any officials posted abroad, and is not even paying those who are working in the Ministry of Foreign Affairs in Kabul, according to sources.

In some countries like Pakistan, the Taliban has posted one of their officials in the embassy in an “unofficial capacity”.

The Taliban in Kabul is also leaving no stone unturned to shore up international support to get recognition as well as access to the $9 billion worth of Afghan Central Bank assets that the US has frozen.

They are meeting heads of missions of the countries that still have their embassies running in Kabul as well as special envoys from other countries that have a focus on Afghanistan.

On Thursday, the Taliban government said, “Security and full conditions have been created for investment in Afghanistan, from Germany and the Netherlands and the rest of the world.”

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Afghanistan’s banking system may collapse within months, warns UN

November 22, 2021 

A file photo of Afghanistan’s central bank.

• UN urges urgent actions to address Afghanistan’s financial crunch. 
• An abrupt withdrawal of most foreign development support after the Taliban seized power has sent the economy into freefall, says UN report. 
• “We need to find a way to make sure that if we support the banking sector, we are not supporting Taliban,” says UNDP official.

Underscoring the need for urgent actions to prop up Afghanistan’s banks, the United Nations Monday warned that a spike in people unable to repay loans, lower deposits and a cash liquidity crunch could cause the financial system to collapse within months.

In a three-page report on Afghanistan’s banking and financial system seen by Reuters, the UN Development Programme (UNDP) said the economic cost of a banking system collapse – and consequent negative social impact – “would be colossal.”

An abrupt withdrawal of most foreign development support after the Taliban seized power on Aug. 15 from Afghanistan’s Western-backed government has sent the economy into freefall, putting a severe strain on the banking system which set weekly withdrawal limits to stop a run on deposits.

“Afghanistan’s financial and bank payment systems are in disarray. The bank-run problem must be resolved quickly to improve Afghanistan’s limited production capacity and prevent the banking system from collapsing,” the UNDP report said.

Finding a way to avert a collapse is complicated by international and unilateral sanctions on Taliban leaders.

“We need to find a way to make sure that if we support the banking sector, we are not supporting Taliban,” Abdallah al Dardari, head of UNDP in Afghanistan, told Reuters.

“We are in such a dire situation that we need to think of all possible options and we have to think outside the box,” he said. “What used to be three months ago unthinkable has to become thinkable now.”

Afghanistan’s banking system was already vulnerable before the Taliban came to power. But since then development aid has dried up, billions of dollars in Afghan assets have been frozen abroad, and the United Nations and aid groups are now struggling to get enough cash into the country.

‘UNDER THE MATTRESS’

The UNDP’s proposals to save the banking system include a deposit insurance scheme, measures to ensure adequate liquidity for short- and medium-term needs, as well as credit guarantees and loan repayment delay options.

“Coordination with the International Financial Institutions, with their extensive experience of the Afghan financial system, would be critical to this process,” UNDP said in its report, referring to the World Bank and International Monetary Fund.

The United Nations has repeatedly warned since the Taliban took over that Afghanistan’s economy is on the brink of a collapse that would likely further fuel a refugee crisis. UNDP said that if the banking system fails, it could take decades to rebuild.

The UNDP report said that with current trends and withdrawal restrictions, about 40% of Afghanistan’s deposit base will be lost by the end of the year. It said banks have stopped extending new credit, and that non-performing loans had almost doubled to 57% in September from the end of 2020.

“If this rate continues of non-performing loans, the banks may not have a chance to survive in the next six months. And I am being optimistic,” al Dardari said.

Liquidity has also been a problem. Afghan banks heavily relied on physical shipments of US dollars, which have stopped. When it comes to the local afghani currency, al Dardari said that while there is about $4 billion worth of afghanis in the economy, only about $500,000 worth is in circulation.

“The rest is sitting under the mattress or under the pillow because people are afraid,” he said.

As the United Nations seeks to avert famine in Afghanistan, al Dardari also warned about the consequences of a banking collapse for trade finance.

“Afghanistan last year imported about $7 billion worth of goods and products and services, mostly foodstuff … If there is no trade finance the interruption is huge,” he said. “Without the banking system, none of this can happen.”

 

link  :  https://www.news24pk.com/2021/11/22/afghanistans-banking-system-may-collapse-within-months-warns-un/

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Afghanistan banking system could collapse, warns UN

11/22/2021 2:20:33 PM

 

KABUL: The United Nations on Monday warned that Afghanistan's financial system could collapse within months if no urgent action is taken to prop up local banks, amid lower deposits and a cash liquidity crunch pushing more people to poverty.

The UN Development Programme, in a three-page report, said the economic cost of a banking system collapse, warning that social fallouts of such a collapse would be colossal.

“Afghanistan's financial and bank payment systems are in disarray. The bank-run problem must be resolved quickly to improve Afghanistan's limited production capacity and prevent the banking system from collapsing,” the UNDP report said.

“We need to find a way to make sure that if we support the banking sector, we are not supporting Taliban,” Abdallah al Dardari, head of UNDP in Afghanistan, told Reuters.

“We are in such a dire situation that we need to think of all possible options and we have to think outside the box. What used to be three months ago unthinkable has to become thinkable now,” he said.

Afghanistan's banking system was already vulnerable before the Taliban came to power. But since then development aid has dried up, billions of dollars in Afghan assets have been frozen abroad, and the United Nations and aid groups are now struggling to get enough cash into the country.

The UNDP's proposals to save the banking system include a deposit insurance scheme, measures to ensure adequate liquidity for short- and medium-term needs, as well as credit guarantees and loan repayment delay options.

“Coordination with the International Financial Institutions, with their extensive experience of the Afghan financial system, would be critical to this process,” UNDP said in its report, referring to the World Bank and International Monetary Fund.

The United Nations has repeatedly warned since the Taliban took over that Afghanistan's economy is on the brink of a collapse that would likely further fuel a refugee crisis.

UNDP said that if the banking system fails, it could take decades to rebuild.

 

link  :  https://menafn.com/1103230720/Afghanistan-banking-system-could-collapse-warns-UN

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Afghanistan’s Pivot to Crypto: Will It Work?

Iran, Venezuela, and North Korea have tried cryptocurrency during economic uncertainty, with mixed results. Will Afghanistan be any different?

By Scott Chipolina  7 min read

 

Oct 23, 2021

 

In brief

• Recent data suggested that Afghanistan is pivoting to crypto.
• Decrypt spoke to Afghanistan experts to discover whether ordinary Afghans really stand to benefit or not.

 

In times of turmoil, more nations are turning to crypto. Iran, Venezuela and North Korea have all used cryptocurrencies to avoid sanctions, access global markets, or, in the case of North Korea, even conduct cyberwarfare. 

Now it is Afghanistan’s turn. Data published in August by crypto analytics platform Chainalysis found that Afghanistan ranked 20th out of 154 countries in overall cryptocurrency adoption. If you isolate for core peer-to-peer trading volume, Afghanistan ranks seventh globally.

 

A year ago, Afghanistan didn’t even rank in Chainalysis’ data, suggesting its crypto boom is a recent phenomenon. Then in August, the Taliban took full control of the country—an event that triggered economic collapse, and has led some to suggest cryptocurrencies could become even more important.

Will crypto provide a lifeline? Not necessarily. Decrypt spoke to Afghanistan experts who suggested cryptocurrencies will do little for the country’s struggling population—but may benefit their Taliban rulers. 

Afghanistan’s crypto moment? Not so fast

 

Among the ordinary Afghans seeing the potential of crypto is Farhan Hotak, who lives in the south of the country near the Pakistan border. The 22-year-old Hotak has gained media attention in recent weeks as an avid crypto trader living under Taliban rule. 

“I have very, very, very limited resources to do anything. I’m interested in the crypto world, because I have earned a lot, and I see a lot of potential in myself that I can go further,” Hotak told CNBC this August. 

Yet Hotak remains an exception. While Chainalysis’ data suggests crypto is becoming more popular in Afghanistan, experts doubt that cryptocurrencies will impact the lives of ordinary Afghans in any meaningful way. 

“You’re not going to be able to just walk up to a vegetable market and pay for your vegetables with crypto,” Peter Mills, Afghanistan researcher for the Institute for the Study of War, told Decrypt, adding that Afghanistan remains—more so now than ever—a cash-driven economy. 

In fact, Afghanistan relies on hard cash so extensively that some of its citizens are adopting other fiat currencies amid a severe lack of circulating afghanis—the local currency—due to international sanctions. 

“They’re switching to other currencies—they’re using Pakistani rupees. I’ve seen some reports that they’re using Iranian currency in Western Afghanistan, like in Herat,” Mills said. 

Mills's point is underscored by the story of a baker in Syria, in the northern town of Azaz, ditching the rapidly devaluing local currency for Turkish lira, following the example of his local council.

Given how Afghans have been quick to adopt other sorts of money, could they come to embrace crypto too? As it turns out, there are several reasons why ordinary people are unlikely to use it at the rate implied by Chainlaysis’ data. One relates to physical infrastructure—or what’s left of it.

In recent months, a rival group to the Taliban known as the Islamic State Khorasan has taken to blowing up electricity pylons.

“They have targeted electricity pylons and telecommunications infrastructure and other important economic infrastructure in order to create more economic instability and undermine the government,” Mills added. 

With electrical infrastructure potentially wiping out entire regions’ access to power—as well access to the internet—widespread cryptocurrency adoption faces a severely uphill battle in Afghanistan. 

Meanwhile, a culture of government corruption is another impediment to Afghan civilians benefiting from crypto. Such corruption was underscored by the Kabul Bank scandal of 2010, which saw politicians and high-ranking officials embezzle approximately $1 billion, paralyzing any meaningful attempt to develop Afghanistan’s economy and financial infrastructure. Few believe corruption will diminish under the new Taliban government. 

The upshot is that there’s little chance Afghanistan’s leaders will follow the example of El Salvador—another impoverished country where, for better or worse, its leaders are pushing citizens to use Bitcoin.

“The issues are more real economy, political rule of law, security...you know, the payment technologies are sort of on the side in terms of importance,” Warren Coats, former member of the IMF program for Afghanistan, told Decrypt.

Coats added that it’s a “wonderful thing” when digital technology meets payments, and anything that makes Afghans less reliant on cash would be welcomed, but “that is almost certainly not going to happen with non-legal tender.” 

Cryptocurrencies are unlikely to improve the life of everyday Afghans. But might they help the Taliban instead?

 

A crypto playbook for jihadists

 

As with the governments of other rogue states, Afghanistan’s new Taliban leaders may latch on to cryptocurrencies as a way to skirt international sanctions hobbling its economy.

According to Yaya Fanusie, former CIA analyst and senior fellow at the Center for a New American Century, jihadist groups have been incorporating crypto into their global payment networks for some time.

 

This strategy could be particularly appealing to the Taliban, given how even its traditional allies like Pakistan and China have yet to afford any legitimacy to their government. 

“Even Pakistan is reluctant to be the first ones to move and recognize the Taliban,” Mills added. 

One Twitter user with a following of more than 20,000 that goes by the pseudonym Bibi Janey, even published a tweet suggesting that the Taliban should “hold an emergency meeting with money exchangers to train them on exchanging Bitcoin.” 

According to Siegfried Wolf, director of research at the South Asia Democratic Forum, a Taliban controlled Afghanistan could even “expand from being a mere physical hub for international terrorist groups,” and evolve into a more crypto-specific “online nodal point for crypto/fiat currency transactions outside appropriate oversight.” 

This is not too difficult to imagine, given that the Taliban would only need a steady flow of electricity in small pockets of Afghanistan to run Bitcoin operations. This would fit a pattern of other terrorist organizations that have relied on cryptocurrencies, including Hamas and the Islamic State. 

The risk of the Taliban turning to crypto financing appears more likely still given that its traditional source of funds—the opium trade—may soon be on its way out, despite the group having previously pocketed up to $3 billion a year from it. 

“At least officially, they’ve said they’re going to get rid of opium farming and production,” Mills said.

The fallout of the Taliban’s crypto bet

 

Rogue states like Iran, Venezuela, and North Korea have all pivoted to crypto before. 

In Venezuela and Iran, cryptocurrency is used to avoid sanctions and, in Venezuela, to distract from hyperinflation as well. In North Korea, the Kim regime’s crypto-theft and hacking escapades have long been relied on to prop up a chronically failing economy. 

While the circumstances of rogue states vary wildly, their actions always raise the ire of the United States, and Afghanistan's crypto pivot will be no different. 

Just this week, a report released by the Biden administration warned that digital assets like cryptocurrencies undermine the United States’ sanctions regime, a regime that has long served as a cornerstone of American foreign policy.

“These technologies offer malign actors opportunities to hold and transfer funds outside the collar-based financial system. They also empower our adversaries seeking to build new financial and payment systems intended to diminish the dollar’s role,” the report published by the U.S. Treasury Department said. 

The Treasury’s report has also called for the U.S. sanctions regime to become more proficient in tracking and seizing digital assets. The report also echoed the administration’s repeated warnings against cryptocurrencies more broadly, which has led to speculation about an executive order aimed at cracking down on crypto.  

In other words, if the Taliban wants to follow in the crypto footsteps of previous rogue regimes, they may discover it's more trouble than it's worth.

 

link  :  https://decrypt.co/84071/afghanistan-bitcoin