After the Taliban took over Kabul, the Biden administration froze Afghan reserves abroad. The U.S. government also suspended air shipments of shrink-wrapped pallets of U.S. dollars to Da Afghanistan Bank (DAB), the country’s central bank, paralysing the banking system.

• The ensuing cash shortage “has crippled business, impeded humanitarian services, sent food and fuel prices soaring, and triggered a widespread hunger crisis,” wrote New York Times journalist Lauren Jackson.
• “It’s good the fighting is over. [But] there is no moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More and everything is expensive,” said Abdul Kabir, a shopkeeper and money dealer in Marja, changing afghanis (AFN) into Pakistani rupees.

The Retail Payments System Collapses

Until August, Afghanistan received cashMoney in physical form such as banknotes and coins. More shipments of $249 million every three months in boxes of bound $100 notes that were kept safeSecure container for storing money and valuables, with high resistance to breaking and entering. More in the DAB’s vaults and the presidential palace. Since then, U.S. dollars have nearly disappeared from circulation.

• In October, Reuters reported a confidential brief prepared for international donors and lenders, including the World Bank and the International Monetary Fund, squarely blamed the DAB’s leadership on the situation. “The biggest source of the problem is the mismanagement as the central bank prior to the Taliban takeover,” the report said, refuting Ajmal Ahmady, former DAB governor, until the fall of Kabul.
• The report criticised the DAB’s “strikingly high” amount of U.S. dollars auctioned to commercial banks to defend the afghani’s value between June 1 and August 15.
• The report also blamed the DAB’s policy to keep ample cash reserves in provincial branches despite the Taliban advances. Although the Taliban handed over $12.3 million in cash and gold to the DAB found in the houses of former officials and government offices, “some money is reportedly lost (stolen) from ‘some’ of the provincial branches,” the report said.

Although there are afghanis for $4 billion worth, only $500 million worth circulates in daily payments. “The rest is sitting under the mattress or under the pillow because people are afraid,” said Abdallah al Dardari, head of the United Nations Development Programme in Afghanistan and a former deputy prime minister of Syria.

Worn-out afghanis (in denominations of AFN10, 20, 50, and 100, equivalent to USD0.09, 0.19, 0.48, and 0.95) have returned to circulation. Afghans refuse to take them in return for their U.S. dollars, said money exchangers to UNI. The DAB collected and incinerated old banknotes worth AFN1.7 billion (USD16.19 million) in 2021.

In addition, counterfeitThe reproduction or alteration of a document or security element with the intent to deceive the public. A counterfeit banknote looks authentic and has been manufactured or altered fraudulently. In most countries, currency counterfeiting is a criminal offence under the criminal code. More banknotes (in the AFN500 and 1,000 denominations, equivalent to USD4.76 and 9.52) are circulating more frequently. “I have received them many times,” said Abdul Salim Asadi, a shopkeeper in Kabul. “On the one hand prices have spiked, on the other hand fake banknotes are spreading,” said Abdul Rahim Ahmadzai, another shopkeeper.

A Full Breakdown in the Cash CycleRepresents the various stages of the lifecycle of cash, from issuance by the central bank, circulation in the economy, to destruction by the central bank. More

It is challenging for Afghans to withdraw funds from their bank accounts. The Taliban have imposed capital controls, including limits to bank withdrawals (first to $200 and then $400 a week) and a complete ban on the use of foreign currencyThe money used in a particular country at a particular time, like dollar, yen, euro, etc., consisting of banknotes and coins, that does not require endorsement as a medium of exchange. More, despite the heavy reliance on U.S. dollars. As the New York Times and the Financial Times have reported, Taliban fighters patrol banks where anxious customers wait for hours, seeking to withdraw cash from their accounts.

• Former N.G.O. employee Mohammad Rasool spent his last $4 on a taxi to Mazar-i-Sharif after the bank branch in his rural town closed, hoping to withdraw cash from his savings account to buy medicine for his 9-year-old daughter, sick with pneumonia. However, by 3 pm a bank teller announced that the bank had run out of cash. “I have the money in my account, it’s right there. What will I do now?” said Mr Rasool.
• “I had come to get money from my bank. There are cash issues here. I have a dollarMonetary unit of the United States of America, and a number of other countries e.g. Australia, Canada and New Zealand. More account, but when I try and withdraw cash, they tell me that they would give the money in the local afghani currency. The exchange rateThe rate at which one currency will be exchanged for another. More they offer is very low compared to the market,” said Mohammad Emal, a Kabul resident.
• “The economic situation and national interests in the country require that all Afghans use Afghan currency in their every trade,” said a Taliban spokesman.

The Scarcity of Cash Magnifies the Economic Collapse

Afghan homemakers sell their belongings on the streets to get cash to buy food and medicine or raise funds to emigrate.

• “I have been unemployed since three months. I have sold all my household items and bought food items with the income,” said Sharifa (name changed), a female ex-government official and mother of two.
• “We are left with no other option than migration. We are having to sell our household items for half their prices and leave their country,” said Kamela (name changed).
• “I have sold my gold jewelry to have some dollars for the expenses of our house,” said Khalida.

Afghans are also postponing regular and urgent medical care.

• “I wanted to bring her to the hospital earlier. But I had no money, I couldn’t come,” said Rooqia, a 40-year-old mother in Kandahar, caring for her malnourished 18-month -old daughter Amina.
• “I have a head injury and kidney problems, but don’t have money to go see the doctor. If I don’t pay, no one is going to help me,” said Noor Muhammad.

Restoring (Some) LiquidityDescribes the extent to which assets or rights can be converted into cash without causing a significant decrease in the asset’s price. Accordingly, liquidity is often inversely proportional to the profitability of the asset and involves the trade-off between the selling price and the time needed to convert it to cash. In finance, cash is considered the most liquid asset and cash is sometimes used as a synonym for liquidity (e.g. cash reserves; cash pooling…). More: The Case (and DenominationEach individual value in a series of banknotes or coins. More) of Personal RemittancesMoney sent home from emigrants working abroad. More

Per the World Bank, remittances to Afghanistan reached $788.92 million in 2020, 4% of Afghan GDP. Most remittances originate in Iran, Saudi Arabia, Great Britain, Germany, and the United States.

Western Union and MoneyGram suspended transfers to Afghanistan after the fall of Kabul. On September 2, the U.S. Treasury authorised financial institutions to process personal remittances to Afghanistan.

• “Much of our business involving Afghanistan is low-value family and support remittances that support basic needs of the people there, so that’s the grounding that we have and why we want to reopen our business,” said Jean Claude Farah, Western Union’s president in Asia, Europe, the Middle East and Africa. Around 45% of remittances sent via Western Union to Afghanistan before the Taliban took over Kabul was $200 or less, said Farah.
• “We recognise that remittances play a pivotal role in the livelihood and daily needs of the Afghan people,” said MoneyGram in a statement.

However, after Western Union and MoneyGram resumed money transfers to the country, the DAB ordered banks to pay remittances in local currency to preserve scarce U.S. dollars, part of capital controls imposed by the Taliban. “It’s a matter of concern that the remaining physical cash of U.S. dollars is going to reduce further,” said an Afghani banker to Reuters.

Afghanistan Needs Physical Cash to Jumpstart its Banking System

Afghanistan’s cash shortage resembles similar crunches in countries such as Zimbabwe, Venezuela, Lebanon, Syria, and Myanmar experiencing political and economic dislocation, social instability and humanitarian crises.

After the Taliban took over the country, United Nations (U.N.) agencies and aid groups used hawalas (informal money-moving networks) and cash withdrawn from banks to pay staff salaries and make smaller cash purchases. However, “these modalities are not sufficient for the large scale operations requiring cash payments or cash assistanceThe term cash assistance refers to direct cash transfers to individuals, families and communities in need of humanitarian support in lieu of in-kind commodities or direct service delivery. The term can be used interchangeably with ‘cash-based interventions’ (CBI), ‘cash transfer programming’ (CTP), ‘cash and voucher assistance’ (CVA), and ‘cash-based programming (CBP)’. It does not include fund transfers from donors, payment of incentives to the staff of local authorities, paymen... More in-country,” said Stephane Dujarric, U.N. spokesman.

In October, Reuters reported U.N. officials were preparing plans to fly in U.S. dollar bills to Kabul for distribution via banks in payments of less than $200 directly to those needing food assistance and to pay salaries to U.N. and nongovernmental organisations staff, without Taliban involvement.

Restoring the continuity of the cash supply is critical in mitigating Afghanistan’s economic collapse.

• “The minute you start the local community economic activity and people are able to deposit money and take money these banks are able to open their local branches,” said Kanni Wignaraja of the U.N. Development Programme.
• “Without functioning banks and liquidity, ordinary Afghans are cut off from their life savings and have no way of surviving,” said Jan Egeland, Norwegian Refugee Council secretary-general.

This post is also available in: