Exiled Afghan Central Bank Chief Warns Taliban Will Wreck Economy — But Will Crypto Keep The Regime Afloat?

The exiled head of Afghanistan’s central bank has warned the Taliban will plunge the nation into a financial miasma as frozen assets and an already-weak local currency will create a new wave of monetary hardships.

What Happened: In an interview with Bloomberg, Ajmal Ahmady, governor of Da Afghan Bank, observed the majority of the central bank’s more than $9 billion in assets were frozen by the U.S. following the fall of Kabul to Taliban forces.

Speaking from an undisclosed location outside of Afghanistan, Ahmady said the country was already dealing with the COVID-19 crisis and a regional drought before the Taliban took power, and the displacement of people and new domestic uncertainties created by their regime will only exacerbate problems.

Last week, the International Monetary Fund said the Taliban has been prevented from accessing reserve assets worth about $500 million. Afghanistan functions primarily as a cash economy, but the Afghani, the nation's currency, is not accepted for cross-border trade, while an informal transfer system known as hawala doesn’t function efficiently in a modern financial environment.

Ahamdy predicted the Taliban will “probably try to go out to other countries to replace the U.S., and maybe China, Pakistan, or other regional countries to find some sources of finance, but it’s a tough situation.”

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What Else Is Happening: CNBC reported that Afghanistan is suffering from a cash shortage due to runs on banks and a fraying currency, which is quickly driving up the price of consumer goods. Overseas funds transfers via The Western Union Company WU have been suspended and the absence of central bank leadership leaves the country without a fiscal policy.

However, one option for the Taliban's financial wellness could come through cryptocurrency.

The blockchain data firm Chainalysis ranked Afghanistan as 20th out of the 154 countries for overall cryptocurrency adoption. Last year, Afghanistan didn’t rank at all due to a near-nonexistent cryptocurrency presence.
It is unclear if the Taliban is using cryptocurrency, but the digital asset could be a way for it circumvent financial sanctions from the world community. North Korea, which has been the subject of sanctions for years, has reportedly relied on cryptocurrency to bypass global restrictions placed on its economy and has been accused of hacking cryptocurrency exchanges to gain more digital assets.
Photo: A 5,000 Afghani bill, courtesy of Wikimedia Commons.