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Afghanistan: Currency Reform May Restore Trust

  • Mark Baker

Afghan authorities are embarking on an ambitious plan to reform the country's currency, the afghani. New, higher-denomination notes will make the lives of citizens easier. Officials see the reform as a chance to win the country's trust. RFE/RL reports that the reform will certainly improve the lives of currency traders, who now must spend hours and hours counting the country's near-worthless notes. But any lasting reform will have to be backed by sound policies.

Kabul, 18 September 2002 (RFE/RL) -- Finance officials in Afghanistan are putting the final touches on a sweeping currency reform they hope will rejuvenate the economy, improve the lives of citizens, and strengthen the authority of the central government.

Beginning on 7 October, citizens will be required to exchange their old afghani notes for new notes issued by the Transitional Authority, which took power in June. This week, the new notes were being shipped out to exchange points around the country to prepare for the changeover.

Taj Mohammad Akbar is the president of the Pashtani Commercial Bank, the largest commercial bank in Afghanistan. A dapper dresser in his mid-50s, he has played an active role in promoting the currency reform.

Akbar said the main aim of the reform is to stabilize the currency and to foster trust in the central government. The past two decades of war, especially the last 10 years of civil war, have seen the value of the afghani plunge and have given rise to hyperinflation.

In 1992, before the outbreak of heavy fighting, one U.S. dollar was worth 450 afghanis. By 1996, after the mujahedin wars, the afghani had fallen to 20,000 per dollar.

Akbar said that warlords privately printed millions of afghanis to cover their war costs. The result, not surprisingly, was hyperinflation. "Unfortunately, during the 23 years of fighting and especially after 1992, money was not printed according to the economic needs of the country. Individuals printed a great deal of different currencies for warfare and military purposes. That in turn caused monetary inflation in the country," Akbar said.

Akbar said that inflation "led to an economic loss. People's real incomes fell, and the common man came to distrust the national currency. Many of them turned to holding and using foreign currencies, like the Pakistani rupee, for example."

Afghanistan is still awash in warlord money. While most of the bills in circulation are legitimate and issued by the government of Burhanuddin Rabbani before 1996, it's not uncommon to come across the odd "junbeshi" or "dostumi." These are afghanis that were originally printed by ethnic Uzbek commander Abdul Rashid Dostum to finance his war aims. They still circulate freely, especially in the north of the country, at a value of one-half an official afghani.

The currency reform will pull all of these disparate notes out of circulation, replacing them with crisp, new, uniform bills from the Transitional Authority.

The new notes will also be redenominated, making life easier for Afghan citizens to count and use. Three zeroes will be knocked off the denominations, meaning the 10,000-afghani note -- currently the largest in circulation -- will become 10 new afghanis. Higher denominations of 20, 50, 100, 500, and 1,000 afghanis will be added.

The new denominations are desperately needed. Hyperinflation has reduced the value of the 10,000-afghani note these days to around $0.25. A simple restaurant meal or a trip to the grocery store requires a wad of bills several centimeters thick. The purchase of a new television or washing machine would require wheelbarrows full of afghanis.

Out on the streets of Kabul's currency bazaar, traders say they can't wait for the new money. The higher denominations promise an end to the countless hours of counting notes, the bane of these traders' existence.

A simple exchange of $100 for 4 million afghanis means a currency trader must count out 400 notes. So as not to be swindled, the customer must then recount them. The process of negotiating a rate of exchange and counting the notes can take the better part of an hour.

Wazir has been counting out afghanis in Kabul's central bazaar for as long as he can remember. He said the new notes will make his life much easier. "I'm tired of counting these old afghanis because it takes a long time and it is a waste of time to count it. The new currency is stronger and one note of the new currency is equal to many notes of this old currency," Wazir said.

In Kabul, anyone with a sturdy wooden table, a chair, and a stack of afghani notes can be a currency trader. No special license or training is required for these street traders.

But the hours are long and the rewards are uncertain. The afghani's volatility -- in the past, the currency sometimes rose or fell by as much as 20 percent in a day -- can mean either great profits or spectacular losses. It's not for the fainthearted.

Nazir is younger and has been working as a currency trader for just five years. He said he would welcome a stronger, less volatile currency. "Our biggest problem was that the Afghan currency was very weak against the foreign currencies. For example, one Pakistani rupee was exchanged for 1,100 afghanis and after the establishment of the transitional government, the afghani became stronger and one Pakistani rupee was worth 600 afghanis," Nazir said.

There's no doubt that Afghanistan needs a new, stronger currency. But it remains to be seen whether the new afghanis will fare any better than did the old. Ultimately, the value of the currency will depend on responsible policies by the central bank and the faith of citizens in their own government.

With the national government still struggling to impose its control over large parts of the country, that faith could still slip away.

Akbar is confident the currency reform will succeed. He brushes off the suggestion that groups in the north and south of the country opposed to the central government could ultimately wreck the new currency, just as the old warlords did with the current afghanis. "As I mentioned before, there is a matter of confidence and the small groups opposed to the national government are only individuals. They do not represent the nation of Afghanistan. The nation of Afghanistan trusts the Islamic Transitional Authority presided over by Hamid Karzai," Akbar said.

Officials hope to wind up the currency reform by the end of the year. Citizens will have until the first week of December to exchange their old notes. After that, the old afghanis will become collector's items.