Dr. Nafay Choudhury
A year after the Taliban took power, Afghanistan’s money exchangers are being squeezed by economic turmoil and harsh rules implemented by the new regime. But while their market has certainly seen better days, the 400 exchangers hustling in Kabul’s central exchange show no signs of letting up. Each day, they continue to churn a wide range of financial services, offering not just currency exchanges, but also money transfers, savings accounts, and even loans to reliable customers.
Despite facing unique challenges under the Taliban’s regime, exchangers have become the lifeline of the Afghan economy. Over much of the past decade, I’ve studied the resilience of Afghan market actors, and during my visit to Afghanistan in September, exchangers had strategized and adjusted to the new normal. As Afghanistan’s banks have been cut off from the international financial system, exchangers provide one of the few remaining financial connections between the country and the outside world.
The story of Afghanistan’s exchangers reveals how local market actors can quickly adapt to political and economic change. In times of prosperity, exchangers bolster growth by taking calculated risks; in times of crisis, they manage to maintain core financial services. Throughout their century-long history, exchangers’ ability to resist being captured and co-opted by the state has allowed them to outlive the rise and fall of regimes while remaining at the core of the Afghan economy.
After the Taliban takeover, many exchangers believed that regulations on their market would be relaxed. The previous government had used legislation in an effort to progressively extend its authority over the market, whereas, during the Taliban’s reign in the late 1990s, the market was completely unregulated.
This time, however, the Taliban chose to double down. The guarantee that each exchanger is required to deposit in Da Afghanistan Bank, the country’s central bank, has increased tenfold, from $3,000 to $30,000. The Taliban have also been adamant that exchangers be converted from sole proprietorships to multistakeholder businesses, which helps create a paper trail and makes it easier for the government to trace the movement of funds. Under the previous government, exchangers had fiercely resisted this kind of change, since it would have exposed them to greater risk by making their funds accessible to other exchangers. Now, exchangers have acquiesced to the demand.
Central bank audits have also become more stringent. As one exchanger told me, “Before, they would only look at the books we gave them, but now, they search everywhere in our shop to see if we have other books hidden.”
There are a few possible explanations for the Taliban’s rigid approach. Some exchangers posit that since the Taliban previously relied on exchangers when they were insurgents, they now want to ensure that opposition groups do not use exchangers against them. Others say that the Taliban are keen to collect tax from exchangers. Still others argue that these rules help ensure that nervous exchangers do not abscond with the funds of their customers, as a few exchangers have done since the Taliban’s takeover.
The Taliban know that the exchangers’ informal money transfer system is the only financial link that connects Afghanistan to the outside world.
Whatever their exact rationale, the Taliban have not been able to completely extend their control over money exchangers. For one, exchangers have devised new strategies for appeasing—and at times eluding—Taliban officials. They have positioned themselves as a self-governing community, siding with the government when doing so benefits them and resisting the government when it does not. This February, exchangers joined ranks with the Taliban in calling on the United States to unfreeze Da Afghanistan Bank’s $7 billion in assets. However, last month, exchangers resisted attempts by the Taliban to ban the yearly elections for the president of the exchange market, thereby retaining control over internal market affairs. For exchangers driven by the bottom line, allegiances are fleeting, which ultimately facilitates the longevity of the market.
More importantly, the Taliban know that the exchangers’ informal money transfer system, known as hawala, is the only financial link that connects Afghanistan to the outside world. Hawalas help remittances enter the country and allow local traders to pay their foreign suppliers—even those in neighboring countries that have stopped providing visas to Afghans. Small and medium businesses rely heavily on exchangers for both hawalas and loans to help them import goods. In January, the Norwegian Refugee Council found that more than 70 humanitarian nongovernmental organizations use hawalas. Without them, humanitarian suffering would only intensify.
Like the previous government, the Taliban also depend on exchangers to stabilize the value of the afghani currency through U.S. dollar auctions, where Da Afghanistan Bank sells U.S. dollars to exchangers to soak up excess afghanis in circulation that could otherwise devalue the local currency.
Exchangers’ work has become only more crucial as Afghanistan’s economic calamity worsens. A combination of sanctions, the termination of international assistance, and the exodus of hundreds of thousands of Afghans has caused the economy to shrink by some 30 percent since August 2021. The U.N. Development Programme estimates that since last year, the economy has lost nearly $5 billion. Due to widespread unemployment, approximately 50 percent of the population suffers from critical levels of food insecurity.
Half of Da Afghanistan Bank’s assets have remained bogged down by litigations in U.S. courts since August 2021 over whether 9/11 victims and their families should be entitled to Afghan public funds. Washington recently transferred the other half to a Swiss-based trust, the Bank for International Settlements, to be used to stabilize the Afghan economy while avoiding any engagement with the Taliban. The mechanics of that assistance remain opaque and will likely be mired in logistical and political wrangling that keeps reserve assets all but out of reach for the Afghan people. As a trickle of hope, though, the U.S. government and its partners recently facilitated the transfer of a small portion of these funds so that 10 billion afghanis’ worth of newly minted bills could be sent to Afghanistan—a measure sorely needed as sanctions on afghanis’ import until now have led to money literally crumbling beyond repair
Banks have been pushed to their breaking point as they have been cut off from the global financial system, no longer able to engage in international transfers. Money is steadily flowing out of their coffers. Every day, customers line up at 5 a.m. for their weekly withdrawal of $400, a limit mandated by the Taliban to prevent a complete run on the banks. All banks have drastically downsized their operations, with branches remaining in only a few major Afghan cities. Public trust in banks has been destroyed for the next few decades.
Even in their heyday, banks played a limited role in society and could not replace exchangers. In the past two decades, bank customers have hailed primarily from city centers. According to the World Bank, only around 15 percent of the adult population possessed bank accounts as of 2020—and many of those people required those accounts only to receive their salary, which they then withdrew in full. Moreover, Afghan banks have been very conservative in providing loans since a banking crisis hit the country in 2010, when one of the country’s major banks, Kabul Bank, was found to be engaging in fraudulent activities. In 2019, the World Bank reported Afghanistan as having a 3 percent loan-to-GDP ratio—the lowest of all countries globally. That year, the global average of loan-to-GDP ratios was 59 percent; even conflict-afflicted Democratic Republic of the Congo reported a ratio more than double that of Afghanistan. Then, like now, Afghan customers simply could not depend on banks for loans.
Afghanistan’s banking sector succeeded in servicing an elite few but failed to make inroads into wider society. The sector depended on the previous government functioning—not only so it could maintain links with the international financial system, but also because financial activities associated with the state (employee salaries, development projects, businesses servicing government offices) were a primary source of capital for banks. Once that regime was toppled, the sector’s foundation fell from below. Conversely, money exchangers operate from the bottom up, having incrementally developed their financial services across society. They have always resisted undue interference from the state.
Financial crises in Pakistan, Sri Lanka, Argentina, and elsewhere in just the past several years serve as a humble reminder that the mere presence of a banking sector does not attest to its soundness. In Afghanistan, banks have foundered since the Taliban takeover, while money exchangers have adapted, keeping the entire economy afloat. While their profit margins are down, their market remains intact as they seek out new financial opportunities. Their continued success is linked to their independence from the state, their ability to innovate, and the wide reach of their financial network, which penetrates deep into society.
History teaches us that Afghan money exchangers are here for the long haul. At present, supporting Afghan banks is necessary to ensure that customers receive their hard-earned savings. While ideally, this would require that Da Afghanistan Bank gain access to its full reserves, at minimum, any commercial banking funds currently frozen abroad should be released. Yet it is exchangers, rather than banks, who will ensure that financial services remain available to laypeople and businesses across the country in the days to come.
The article was first published in Foreign Policy on November 26, 2022.
Dr. Nafay Choudhury is a British Academy research fellow at the University of Oxford. He is also a postdoctoral fellow at the University of Toronto and a research fellow at the Afghan Institute for Strategic Studies. Twitter: @nafayc
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