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Afghanistan’s economic challenges: Currency fluctuations vs. foreign exchange

After about two years, the Afghan currency’s value against the US dollar suddenly and significantly improved, reaching an exchange rate of 72 Afghanis per US dollar in recent weeks. However, the prices of food and non-food items in the markets did not decrease.

Despite being largely import-dependent, Afghanistan receives most goods in exchange for dollars. With the expectation of a lower dollar value, it was anticipated that the prices of both food and non-food items would decrease.

Economic experts attribute the fluctuations in the dollar’s value in the markets to two main factors: government monetary policies and the presence of an “economic mafia” in the country. Irregularities in the dollar’s value are often attributed to manipulations by these economic groups that adjust exchange rates for their benefit over specific periods.

Economic analyst Iraj Faqiri mentioned on Khaama Press Twitter Space that control over currency markets lies more in the hands of “mafia groups” that adjust exchange rates according to their interests, despite the Afghan Central Bank injecting more than ten million US dollars weekly to maintain the Afghan currency’s value.

However, economists argue that the weekly influx of dollars into the markets is a temporary and inadequate solution for maintaining the Afghan currency’s value and dollar balance, leading to short-term instability and economic hardships.

Factors like the bankruptcy of Afghanistan’s banking system, reduced foreign aid, and the US freezing of around 9.5 billion dollars of Afghanistan’s assets, which served as a backing for the Afghan currency, have contributed to Afghanistan’s economic collapse following the rise of the Taliban administration.

Economists emphasize that sustainable economic growth relies on security, economic stability, and the rule of law. Currently, Afghanistan lacks these factors, and its economy is considered to be propped up by a “false economy.” One economic observer named Hamdard on Twitter said, “Afghanistan’s economy is mostly money-centered and fake. A sustainable economy requires continuous circulation and foundational projects.”

However, the Taliban administration views preserving the value of the Afghan currency against foreign currencies as one of its significant achievements over the past two years.