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Currency problems cloud Afghanistan's economic prospects

An Afghan woman prepares a fire at a bakery in Silo in the south of Kabul last week. The bread will be sold in the local market for questionable bills. Currency problems in Afghanistan will make it difficult to jumpstart the country's war-torn economy. PHOTO: AFP

In 1996, the Northern Alliance lost control of Kabul and most of the rest of Afghanistan. One thing it never lost was access to the Moscow printing press that produced the country's money.

The Alliance kept printing banknotes that circulated throughout the country. As a result, there are now twin versions of Afghanistan's currency, the afghani. The Alliance's new notes, still being printed as recently as October, are identical to pre-1996 ones: same blue-tinted design and same serial numbers. There is no reliable way to tell them apart.

Creating a credible currency will be a test for the interim government that takes power Saturday. No one knows how much money Afghanistan has. Its value fluctuates. This week, it was trading at 10,000 to the dollar; earlier this month, the rate was 67,000 to the dollar. Afghanistan's economic revival demands a sound currency, observers agree.

"This currency, in my view and anybody's view, should not remain for a long time," said Abdul Qadeer Fitrat, a leading candidate to become central-bank governor, a post he held for about two years before the Taliban took power. Fitrat, who now lives in the US, said he will visit Kabul next week to discuss resuming his old job.

The Alliance printed about 5 trillion afghanis while it was in opposition, roughly half of all the currency now in circulation, according to Wahidullah Sabawoon, the group's finance minister.

"We knew that printing so much money would not benefit the nation, that it would create inflation," Sabawoon said in an interview. "But we had no choice. We were facing an imposed war, and all sources of income were in the Taliban's hands."

The Alliance retained access to the Moscow printer, a holdover from the Soviet occupation in the 1980s, partly because the UN continued to recognize the group as Afghanistan's lawful government.

It used the new notes to pay salaries to its soldiers and administrative staff and, Sabawoon said, to raise hard currency to buy weapons. "We were sending currency dealers to Taliban-held areas with bags full of `afs,' asking them to purchase dollars," he said.

Eventually, the Taliban realized what was happening because the new Alliance banknotes were printed with serial numbers -- starting with 35, 36 and so on -- that were higher than existing notes. The Taliban outlawed bills numbered above 34. So, "we reprinted notes starting from 1 up to 34, making them impossible to detect," Sabawoon said.

While Afghans in former Alliance strongholds continue to use the higher-numbered notes, they pay roughly twice as much if they use them to buy dollars. In the Kabul alleyways where money exchangers work, many traders are reluctant to accept the higher-numbered notes. As for those with duplicate numbers, the only way to distinguish the new ones from the old ones is by an educated guess about the note's age.

About 4 trillion to 5 trillion afghanis existed before 1996, according to both the Alliance and staffers at the central bank, which the Taliban looted before they fled Kabul last month. The Alliance doubled that amount and was still printing notes in October, according to Sabawoon, who won't be part of the new government.

Setting a value for any version of the currency will be difficult. In September 1996, when the Taliban took Kabul, the exchange rate was about 16,000 afghanis to the dollar, central banker Faiz said. By the time the regime collapsed last month, the currency's value had collapsed too, to 80,000.

Since then, it has strengthened again -- a possible sign that Afghans are optimistic their country is on the path to a durable peace.
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