Key Takeaways;
- Afghanistan economy continues to get ruined amidst Taliban rule.
- US sanction compounding problem of the country.
- How crypto could come to the government’s rescue.
LAGOS (CoinChapter.com) – Six months into the Taliban rule in Afghanistan, the country’s economy has collapsed, plunging it to one of the countries with the world’s worst humanitarian crisis.
Millions of dollars of aid that once propped up the previous government have vanished, billions in state assets are frozen, and economic sanctions have isolated the new government from the global banking system.
Locals in the country are now faced with a dire cash shortage that has crippled banks and businesses, sent food and fuel prices soaring, and triggered a devastating hunger crisis.
In the wake of the economic crisis, Afghanistan’s currency has plummeted about a quarter since the Taliban seized power, further exacerbating an economic crisis that has left millions of people in the import-dependent country facing starvation.
US Afghanistan fallout biting harder on Afghan economic plan
After the Islamic group takeover, the US and allied powers withdrew, cut off the funding that made up 80 percent of the government’s budget, froze more than $9bn in central bank reserves, and enforced sanctions that have paralyzed the financial system.
The sanctions mean that Afghans, businesses, and public institutions are cut off from savings, overseas customers, and international donors, worsening what the IMF expects to be a 30 percent economic contraction.
Last month, the UN and US announced exemptions to allow humanitarian aid into the country. But critics maintain that sanctions are punishing ordinary Afghans rather than the Taliban.
Afghans turn to crypto amidst economic crisis; can it help?
Beyond Afghanistan, in times of uncertainties, more countries turn to cryptocurrencies. Iran, Venezuela, and North Korea have all used cryptocurrencies to avoid sanctions, access global markets.
Now it is Afghanistan’s turn. Data published in August by crypto analytics platform Chainalysis found that Afghanistan ranked 20th out of 154 countries in overall cryptocurrency adoption.
A year ago, Afghanistan didn’t even rank in Chainalysis’ data, suggesting its crypto boom is a recent phenomenon. Then in August, the Taliban took full control of the country—an event that triggered an economic collapse and has led some to suggest cryptocurrencies could become even more important.
However, during an interview, a financial expert in the country suggested that cryptocurrencies would do little for the country’s struggling population.
While Chainalysis’ data suggests crypto is becoming more popular in Afghanistan, experts doubt that cryptocurrencies will impact the lives of ordinary Afghans in any meaningful way because the economy is solely cash-driven.
“You’re not going to be able to just walk up to a vegetable market and pay for your vegetables with crypto,” Peter Mills, Afghanistan researcher for the Institute for the Study of War, said.
He pointed that the people rely on fiat so much that citizens are adopting other fiat currencies amid a severe lack of circulating afghanis—the local currency.
How Afghanistan can secure economic blossom with Cryptocurrencies
While crypto may significantly not help individuals, digital assets could prove helpful for Taliban controlling government.
According to Yaya Fanusie, former CIA analyst and senior fellow at the Center for a New American Century, jihadist groups have been incorporating crypto into their global payment networks for some time.
He explains that the strategy could be appealing to the Taliban as Afghanistan allies are yet to afford any legitimacy to their government.
With cryptocurrency adoption, Siegfried Wolf, director of research at the South Asia Democratic Forum, explains that a Taliban controlled Afghanistan could “expand from being a mere physical hub for international terrorist groups” and evolve into a more crypto-specific “online nodal point for crypto/fiat currency transactions outside appropriate oversight.”
He says the Taliban would only need a steady flow of electricity in small pockets of Afghanistan to run Bitcoin operations. This would fit a pattern of other terrorist organizations that have relied on cryptocurrencies, including Hamas and the Islamic State.
The option of crypto particularly may be enticing for the Taliban, given that the previous government was on the verge of going crypto before they were overthrown.
At the annual Spring Meetings of the Boards of Governors of the World Bank Group and the International Monetary Fund in Washington, Khalil Sediq, governor at the Central Bank of Afghanistan, told The Asia Times that Afghanistan might issue a sovereign crypto bond that uses blockchain technology.
He explained that the goal is to raise $5.8 billion to support the country’s critical mining, energy, and agriculture sectors.
Sediq explained that Bitcoin could be used with a form of metals future, such as lithium, adding that the value of Afghanistan’s mineral reserves is estimated at more than $3 trillion.
