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Cash During the Fall of Kabul

Categories : Cash and Crises, Cash generates security, Cash is a contingency and fall-back solution
September 6, 2021
Tags : Afghanistan, Cash, Cash cycle efficiency, Central Bank, Humanitarian
As U.S. and European troops departed, foreign currency shipments to Afghanistan stopped. As a result, Afghans face an acute cash shortage in the early weeks of the second Taliban regime.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

Afghanistan: Dollarisation of Bank Deposits and U.S. Dollars in Cash Shipped by Air from the United States

The financial system of Afghanistan has been operating on an entirely foreign cash basis since the U.S.-led invasion in the fall of 2001 (see Graph 1). As of December 2020, foreign currency deposits accounted for 60% of all deposits in Afghan banks (World Bank 2021: 10). The national currency (the afghani, AFN) is not accepted to settle international transactions and is mainly used on daily transactions.

Graph 1. Afghanistan: Bank Deposit Growth Decomposition by Currencies, February 2015-December 2020

Source: World Bank 2021: 10.

To purchase information and build loyalty, the CIA, the U.S. military, and other U.S. agencies “gave cash to warlords, governors, parliamentarians, even religious leaders” since the start of the war, according to Washington Post journalist Craig Whitlock.

Afghanistan’s reliance on physical cash shipments (primarily from the United States) is yet another aspect of the country’s high dependence on funds from international institutions and donors.

DAB: Central Banker and Leading Cash Manager

In the years after the fall of the first Taliban regime through the summer of 2021, Da Afghanistan Bank (DAB), the country’s central bank, was the leading cash management organization in the country, distributing cash to commercial banks and government agencies, “bringing cash in from a province or sending it out, […] based on the risks seen in that province,” according to Ajmal Ahmady, governor of the DAB until the fall of Kabul on August 15.

As the Taliban increased their hold over Afghan territory, the DAB “would try to bring in all the cash to the center. We were worried about dollars because we get supplied internationally. And so, that was a key concern of our international partners. So any place where the Taliban came close to it, we made sure that we withdrew dollars and tried to repatriate most of the Afghanis as well,” said Ahmady.

U.S. Cash Shipments Suspended

Until the Taliban took over Kabul, the U.S. Treasury dispatched “physical shipments of cash every few weeks” to Afghanistan to finance its “large current account deficit” and honour cash redemptions from bank depositors, per Ahmady.

On Friday, August 13, after several provincial capitals fell to the Taliban, Ahmady learned that the United States would halt cash shipments to Afghanistan “given the deteriorating environment.” The DAB was forced to reduce the amount of U.S. dollars it supplied to banks and hawala dealers to keep up with customers’ withdrawals and currency auctions and placed maximum withdrawal limits on Saturday, August 14.

After a call between president Ghani and U.S. State Secretary Anthony Blinken, the DAB expected a cash shipment the day after. However, that “shipment never arrived. Seems like our partners had good intelligence as to what was going to happen,” tweeted Ahmady. “The amount of such cash remaining is close to zero,” according to Ahmady.

Banks “Are the New Airport:” Bank Runs and Cash Scarcity

On Sunday, I wanted to go to the bank and get cash. I made my coffee and prepared myself: I put on lipstick and a very short dress. I took a taxi. Traffic was bad. At the bank I saw maybe five hundred people. Around fifty were women. You could understand that there was something happening: the bank was full of fear. The teller said, “There is no money—we are waiting for the central bank to send us money.” Suddenly, the gunshots started. And the manager of the bank told me, “The Taliban is inside the city. They’ve surrounded us. You should go home.” – Sahraa Karimi, filmmaker.

As more Afghan territories fell under Taliban rule in the past months, hundreds of Afghans lined up attempting to withdraw their money from ATMs and bank branches. Mere hours before Taliban fighters entered the capital, the Afghanistan Banks Association (ABA) announced that the country’s banks had “enough cash and can pay deposits” and urged its “dear countrymen to use patience.”

However, local banks later “told customers that they cannot return their dollars – because […] all dollars are in international accounts that have been frozen” per international sanctions, said Ahmady.

Restarting the Cash Supply

Per Bloomberg and The Guardian, after the Taliban arrived in Kabul, most banks remained closed and ATMs run out of cash. The main branches of Kabul Bank and Azizi Bank reopened on August 25. Several protests ensued. A customer in line said, “The banks are the new airport,” referring to the thousands of people flooding Hamid Karzai International airport to leave Afghanistan.

The Taliban have appointed a new DAB governor, Haji Mohammad Idris, attempted to reassure banks about their commitment to a functioning financial system, and finally ordered state-owned and commercial banks to reopen by Sunday, September 5. Individuals’ withdrawals have been temporarily limited to AFN20,000 (USD200), and businesses are not allowed to withdraw cash, forcing them to pay via account transfers. Few ATMs are working, and customers have crowded bank branches.

This post is also available in: Spanish