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Afghanistan Expected to Receive New Banknotes from Overseas

Categories : Cash and Crises, Cash is available to all users, Cash is the first step of financial inclusion
October 27, 2022
Tags : Afghanistan, Banknotes, disaster recovery, Humanitarian
Afghanistan has faced a severe liquidity crisis and financial collapse since the return of the Taliban in August 2021, aggravated by a shortage of banknotes. New banknotes are due to arrive from overseas.
Guillaume Lepecq

Chair, CashEssentials

This post is also available in: Spanish

On August 15, 2021, the Taliban recaptured the capital city of Kabul, overthrew the government, and reinstated the Islamic Emirate of Afghanistan. The world watched in shock as U.S. and NATO troops secured the chaotic evacuation of foreign nationals, embassy staff, and Afghan citizens who had worked with foreign coalition forces.

A Cash-Only Economy Suffering from Cash Shortages

The fall of Kabul led to the collapse of the entire financial system, which had been operating on an entirely foreign cash basis since the U.S.-led invasion in the fall of 2001. In December 2020, foreign currency deposits accounted for 60% of all deposits in Afghan banks (World Bank 2021: 10). Foreigners did not accept the national currency (the afghani, AFN) to settle international transactions, and only the Afghan public used it on daily transactions. The international community rapidly cut off Afghanistan from the global financial system.

This left the country facing what The Guardian described as a “potentially catastrophic perfect storm of bank closures and shortages of hard currency on top of the suspension of money transfers by companies that sustain the key flow of remittances to Afghans from abroad by family members.” The Congressional Research Service noted that the economic collapse exacerbated a severe humanitarian crisis before August 2021 due primarily to conflict, drought, and the COVID-19 pandemic. Indicators suggest that conditions have worsened significantly since August 2021: the World Food Program asserted in August 2022 that 92% of Afghans reported not having enough to eat, an increase from the 80% that had insufficient food before the Taliban takeover.

As banknotes continue to deteriorate, the country faces a massive liquidity crisis. The economy has become cash-only without a functioning banking system but faces a severe cash shortage.

New Banknotes from Overseas

According to Afghani media Tolo News, Afghanistan will soon receive a delivery of new banknotes. Citing a Board member of the Special Trust Fund for Afghanistan, established by the U.N. to channel international development aid, the media says the Polish Security Printing Works (PWPW) is due to deliver 380 million new Afghani banknotes within a month.

Tolo News adds that a French printer has signed another contract of 390 million banknotes with a face value of 10 billion Afghanis.

Ned Price, a spokesman for the U.S. Department of State, said at a press conference,

The U.S. and its partners have been working hard with the international banks to facilitate a payment transfer from Afghanistan’s Central Bank to European printing companies where new banknotes will be produced. These companies will now prepare new afghanis to replace worn-out banknotes. And this will address one of the aspects of Afghanistan’s ongoing liquidity crisis, consistent with U.S. efforts to support basic human needs and avoid an economic collapse.

As has been widely reported, Afghanistan’s markets, even today, run widely on cash, but existing banknotes are crumbling. And that’s why this is such an urgent challenge. Though goods are available for sale, money to purchase those goods is deteriorating, and the central bank, with these transactions, will be able to replace old and damaged banknotes. And this will allow the Afghan people to purchase food and other necessary items. So it’s hugely important.

This is about the welfare and the well-being of the Afghan people. They have suffered from the deterioration of these banknotes.

This post is also available in: Spanish