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Afghanistan's money changers are the economy's last best hope

At 3 p.m., Taliban troops entered the Afghan capital. on the 15th of August. By 5:30 p.m. the group had already secured the country's central currency exchange market, Sarai Shahzada. The market is the country's financial center, with hundreds of millions of dollars moving between hands every day. On a normal afternoon, his trading floor resembles a busy stock market, with stock exchanges scrambling for the best exchange rates.

The Taliban certainly have money on their mind. As the Taliban consolidated the country's financial system, the United States announced it had frozen $ 9.5 billion in assets held by the Da Afghanistan Bank, the country's central bank, held by the Federal Reserve Bank of New York are stored. The International Monetary Fund (IMF) and the World Bank also stopped the distribution of hundreds of millions of dollars in loans and other aid that was being given to the country in dire straits. With these foreign funds covering more than 75 percent of public spending in Afghanistan, the Taliban – and the country – are facing a financial crisis.

Afghanistan's central currency exchange market could be the country's last defense against an impending financial disaster. Exchangers have supported the Afghan economy for the past two centuries, even in times of crisis. And if Da Afghanistan Bank and the international community give them the support they need, they will continue to play a vital role in keeping businesses afloat and money circulating in the country.

At 3 p.m., Taliban troops entered the Afghan capital. on the 15th of August. By 5:30 p.m. the group had already secured the country's central currency exchange market, Sarai Shahzada. The market is the country's financial center, with hundreds of millions of dollars moving between hands every day. On a normal afternoon, his trading floor resembles a busy stock market, with stock exchanges scrambling for the best exchange rates.

The Taliban certainly have money on their mind. As the Taliban consolidated the country's financial system, the United States announced it had frozen $ 9.5 billion in assets held by the Da Afghanistan Bank, the country's central bank, held by the Federal Reserve Bank of New York are stored. The International Monetary Fund (IMF) and the World Bank also stopped the distribution of hundreds of millions of dollars in loans and other aid that was being given to the country in dire straits. With these foreign funds covering more than 75 percent of public spending in Afghanistan, the Taliban – and the country – are facing a financial crisis.

Afghanistan's central currency exchange market could be the country's last defense against an impending financial disaster. Exchangers have supported the Afghan economy for the past two centuries, even in times of crisis. And if Da Afghanistan Bank and the international community give them the support they need, they will continue to play a vital role in keeping businesses afloat and money circulating in the country.

Money changers – locally called Sarrafs – work like one-person credit unions. In addition to currency exchange, they offer a wide range of financial services: they store money for safekeeping and facilitate the movement of goods between Afghanistan and neighboring countries by providing merchants with letters of credit and transferring funds through an informal system called hawala.

The formal banking sector has seen limited traction due to competition from file exchanges and the sheer poverty of the country's population. The first Afghan bank, Bank Millie, was founded in 1933 and offered only rudimentary services such as savings accounts for government elites. Da Afghanistan Bank was founded in 1939. Six banks were operating in the country in the 1970s, but growth was halted by communist rule from 1978 to 1992 when foreign trade was taken over by the state, reducing the demand for bank financing by private traders. Civil conflicts in the 1990s only made matters worse. In 2002 the World Bank described the Afghan banking sector as "physically destroyed, technologically obsolete and operationally inoperable".

But while the banks stalled, the foreign exchange market adjusted to the drastic fluctuations in political regimes. Although individual exchangers were persecuted at times – especially those of the Hazara minority under the rule of the Taliban – as an institution, the exchange of money has never stalled.

In 1957, four Afghan Jews established what is now the location of Kabul's central foreign exchange market, and by 1973 the market had grown to 35 stores, most of them run by Afghan Hindus and Sikhs. While the communist regime reduced demand for file sharing services, their networks withstood government interference, and Afghans persecuted by the regime used file sharing networks to pay smugglers to help them escape.

In the 1990s, the foreign exchange market changed in two ways. First, Afghan Hindu and Sikh exchangers immigrated mainly to India due to widespread persecution. "As a result, the Muslim sweepers or servants of these exchangers became exchangers themselves," one senior exchanger told me. These new exchangers quickly forged financial networks and expanded them to new areas across the country and worldwide. Second, as the banking system was in ruins and the country faced international sanctions, market activity grew. During the Taliban's rule from 1996 to 2001, Sarai Shahzada became the hub of all monetary affairs in the country; It was so busy that you couldn't go through without bothering others with your elbow.

After the fall of the Taliban in 2001, the establishment of a functioning banking sector became a central undertaking in international state-building. The IMF helped set up a fledgling banking system that it closely monitored over the years. However, exchangers were widespread while banks had limited options so that a ban or exchange of exchangers was not possible. The Afghan banking regulator therefore pursued the next-best strategy by requiring the file-sharing exchanges to hold state licenses.

As of 2010, 17 banks were operating in Afghanistan. Bank holdings rose from $ 261 million in 2004 to $ 4.26 billion in mid-2010. Then a scandal: That year it was discovered that Kabul Bank, a private bank, was sucking funds out to its executives and Afghan government officials. which revealed the weak supervision of the country's banks. Although the banking sector stayed afloat, its reputation was tarnished and banks became more conservative in lending. According to the World Bank, the ratio of bank lending to GDP in Afghanistan has been one of the lowest in the world over the past decade.

The foreign exchange market also changed after 2001. When the Taliban fell, stock exchanges were at times the only functioning financial network. The international community launched development projects across Afghanistan and had no choice but to rely on money changers to move funds to remote provinces. At a previously unpredictable rate, money flooded the central stock exchange market, which grew from 200 to over 400. The market also organized its business to protect itself from an invading state: Exchanges developed their own administrative structure, which even housed a private court that settled disputes between exchangers.

The autonomy of the stock exchanges has raised suspicions of money laundering and support for the opium trade. In the 1990s, the Taliban financed their activities through the opium trade, and exchangers helped them move funds across borders. Even now, some file-sharing networks continue to facilitate money laundering and the transfer of illicit opium proceeds, which Afghan and US officials are occasionally crackdown on. Still, most exchangers deal with mundane, albeit under-regulated, market transactions.

For the past two decades, exchangers have also supported the banking sector. To prevent inflation, the country's exchange rate has been controlled by a central bank auction system that sells US dollars against the local Afghan currency. The central bank relies on file-sharing exchanges for this auction because its strong economic networks can quickly cash out US dollars to companies across the market. You can also take risks that banks would not, as the loans they make are often based on trust. My research on the foreign exchange market in 2019 found that Sarai Shahzada's credit volume is roughly twice that of commercial banks. (There are also smaller foreign exchange markets all over Kabul and in other major cities, which further increases the volume of exchange loans).

The Taliban's takeover – and the tremendous stress it is putting on the economy – is affecting file sharing in two opposing ways. On the one hand, the deteriorating security will lead some to leave the market. Some have already sent their families abroad and, like many Afghans, are trying to flee the country. Deteriorating security also reduces investment, which in turn hurts the private sector, including file sharing. The transaction volume of the overall system will suffer a slump in the foreseeable future. Furthermore, if the Taliban regime does not have access to central bank reserves or international aid, it will be strangled by the foreign funds that stabilize the value of the Afghans. The exchanges, in turn, are deprived of the US dollars on which they depend for their business, with cascading effects on the entire economy.

On the other hand, conflicts also create opportunities. Unfortunately, many of the Afghan hopefuls who overcrowded Kabul international airport last week were unable to escape. Those who remain in the country still need imported goods. Truck deliveries from Pakistan have resumed at Torkham Junction and these traders will need exchangers to fund their businesses. Afghans abroad also need a functioning hawala network to support family members in the country. As one of the exchangers remarked to me in the last few days: “The exchangers will in no way continue. They are just waiting for the situation to improve. "

Money changers will therefore remain indispensable, especially as the financial sector is shrinking and some banks have to close. Your global financial network will ensure that the country is connected across borders. And by taking calculated risks in unstable financial and security conditions, they will be able to provide basic financial services to millions of Afghans and make an important contribution to containing the economic crisis.

However, even exchangers cannot fully compensate for frozen state assets and shrinking foreign aid. If Washington wants to support the Afghan people, it must hold talks with the Taliban about the calculated release of funds into the economy. Foreign dollars from the United States and international organizations will be critical in allowing the foreign exchange market to resume operations. It is important that the international community not be concerned about an increasing reliance on informal file-sharing networks, which it may associate with illegal money movements or the decline of the financial system. On the contrary, this trust can indicate that the Afghan economy has a chance of fighting.

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