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Afghanistan’s grim test case for central banking in a global wilderness

No access to reserves, sinking currency, soaring inflation. Now what?


Afghanistan is about to provide us with a macabre economic experiment. What happens when you take over a country, have no access to your own international reserves, are shunned by the world community and start running out of cash?

As previous central bank governor Ajmal Ahmady told Euromoney recently – and told the world in a series of tweets on August 18 as he fled the country – the Taliban are not going to get their hands on the country’s reserves, as those reserves are not in Afghanistan to be found.

“I am writing this because I have been told Taliban are asking DAB [Da Afghanistan Bank] staff about location of assets,” he wrote on August 18. “If this is true – it is clear they urgently need to add an economist on their team.”

The week beforehand, DAB reserves stood at $9 billion, most of them held in liquid assets such as Treasuries and gold. DAB’s accounts were held at the Federal Reserve, Bank for International Settlements and other similar accounts, with monitoring conducted through programmes with the IMF and the US Treasury.

Additionally, the IMF was due to receive $340 million on August 23 from a SDR650 billion special drawings rights allocation; that didn’t happen, and nor will any further allocations.

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