To preserve scarce dollars, Afghanistan banks ordered to pay remittances only in local currency

Kabul, Sep 12 (FN Agency) In a move to restrict dollar outflows amid the pause in foreign aid and a scramble by some Afghans to get their savings out of the country, Afghanistan’s central bank has ordered banks to pay remittances only in local currency. Western Union Co’s agent banking partners in Afghanistan received a directive from the country’s central bank in the last few days to pay out remittances in the local Afghani only, said a source close to a money exchange provider. This is the latest move by the Taliban regime to preserve scarce US dollars, Tolo News said quoting sources familiar with the matter. Hard currency remittances have formed an important source of external finance for Afghanistan over the years but the dollar availability has dried up in the aftermath of the Taliban’s conquest of the country. The acting central bank governor, Haji Mohammad Idris, is a Taliban loyalist with no formal financial training.

Remittances sent before the directive was issued and selected by the sender for dollar payout can continue to be paid in dollars, the source said. MoneyGram International Inc said it was paying out in Afghani only, without elaborating further. Both resumed money-transfer services to Afghanistan last week here, having suspended services in August after the Islamist militia captured Kabul. No comment was immediately available from the central bank. Further controls are expected to hasten the Afghani’s depreciation against the dollar, exacerbating inflation in a country where more than a third of the population lives on less than $2 a day. “It’s a matter of concern that the remaining physical cash of US dollars is going to reduce further,” said an Afghani banker.
“With the restrictions we are predicting the dollar will reach more than 100 Afghanis to the dollar.” The Afghani was trading at around 80 to the dollar just before the fall of Kabul on August 15. Banks were told by the central bank last week to restrict withdrawals by corporate customers to local currency only, capped at around 20% of each customer’s weekly operating costs, said the banker. With around 80% of banking deposits in dollars, bankers say controls should minimise the risk of insolvency. Since re-opening in the second half of August, banks have been operating with limited services, including $200 weekly limits on withdrawals and few wire transfers, Tolo News said.