What can the government do to maintain value of Afghani?

Monday, 15 January 2018 03:36 Written by  Heart of Asia Read 958 times

While it doesn’t seem very likely to control the value of Afghan currency given the country’s current economic situation, there are certain steps the government can take to relatively stabilize Afghani against foreign currencies. Afghan currency is taking a tumble as foreign aid declines, with unofficial statistics showing over 10 percent slump in the value of Afghani only over the last two years. If continues, the trend is extremely detrimental to the economy of Afghanistan, especially for ordinary Afghans who have been grappling with huge economic challenges. People whose wages and income are in Afghani are the primary victims of the devaluation of Afghan currency since the majority of commodity prices are determined according to foreign exchange rates, especially the US dollar. 


Finding a fundamental solution to peg Afghan currency requires more time and work. One of the key things to achieve that is, for example, to increase the balance of exports, which is only possible when production capacity is enhanced. Afghanistan can only reach that level after it meets the domestic market demand, something impossible in the near future; however, there are still some certain steps, if taken, can contribute to the stability of Afghan currency. One of these steps is to ban the use of foreign exchange in transactions in Afghan markets. According to Da Afghanistan Bank (DAB), people in more than 13 provinces, almost in half of the country, are using foreign currencies in day-to-day transactions. In southern, southeastern and eastern provinces, people use Pakistani rupee in small business deals, and people there even don’t give Afghani the value it has in Kabul. Similarly, all business transactions in western provinces are done in Iranian Rial. 

The problem is not limited to 13 provinces; most major business deals in capital Kabul are done in foreign currencies, especially the US dollar. From car sales to land and house acquisition, US dollar is the standard currency unit for all major transactions in Kabul. If the government cannot take concrete steps to maintain the value of Afghani, it should at least outlaw and crack down on the use of foreign currencies in the country. All business transactions should be undertaken in Afghan currency so as to circulate it in the markets and create a need for it, thereby preventing its devaluation. Besides, if people begin to trust Afghani, they will resort to exchanging their stocks for Afghani, and depositing Afghani in their bank accounts, a move which will definitely increase the value of Afghan currency.   These are some simple steps the government can easily implement using its existing resources. 




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