Afghani Currency Hits New Lows As Taliban's Takeover Continues: What Investors Need To Know

Afghanistan’s currency fell to its lowest levels in history on Wednesday as the Taliban continues its push to gain complete control of the country.

What Happened? The Afghani dropped 4.6% on Tuesday and was trading at as low as 86.0625 per dollar. On Wednesday, the Afghani was trading at 79.9358 per dollar.

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Why It’s Important: On Friday, the U.S. told the Afghani central bank it would no longer be receiving dollar shipments, a move that severely limited the central bank’s ability to supply currency. It also triggered panic among Afghani citizens.

“Currency spiked from a stable 81 to almost 100 then back to 86,” Afghani central banker Governor Ajmal Ahmady said on Twitter Wednesday. “I held meetings on Saturday to reassure banks and money exchangers to calm them down.”

U.S. President Joe Biden froze billions of dollars of Afghan currency reserves held in U.S. banks on Tuesday to prevent the Taliban from accessing the funds. Ahmady clarified Wednesday that Afghanistan’s reported $9.4 billion in international reserves were never compromised.

The turmoil in Afghanistan has also reportedly spilled over into the financial markets of neighboring Pakistan as well. Pakistani sovereign dollar bonds due in 2031 dropped by 1.8 cents on Monday, their largest single-day drop since they were priced in March.

The chaos in Afghanistan also may have contributed to a sharp sell-off in the SPDR S&P 500 ETF Trust SPY on Tuesday. George Ball, chairman of Sanders Morris Harris, said Tuesday that the volatility is likely just a temporary disruption rather than the beginning of a new downward trend.

“Tuesday's stock market decline is a trader's tantrum and nothing more. The move is a one-day overdone reaction to some disappointing retail sales data and continued geopolitical tensions in Afghanistan,” Ball said.

Benzinga’s Take: The S&P 500 stabilized on Wednesday, suggesting the potential collapse of the Afghani doesn’t pose much direct risk to the U.S. economy. Geopolitical tensions are likely to strengthen the U.S. dollar in the near-term, while investors may see volatility in oil prices due to the turmoil in the Middle East.

Photo: Afghani bank note. Photo by Doctor Z. via Wikimedia.