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Crisis In Afghanistan Is Both Military and Monetary With Banks Closed and ATMs Empty

With its central bank effectively leaderless and the Afghani dollar in a nosedive, geopolitical aspects of the Taliban takeover are being overshadowed by the collapse of Afghanistan’s financial system, and the toll of drastic money shortages on a nation of over 39 million people.

Taliban commanders ordered the country’s banks closed on Aug. 15 — widely seen as a stopgap measure to prevent a run that could topple Afghanistan’s fragile banking system.

Though the Taliban reportedly ordered banks to reopen about a week into their military takeover and amid the hectic withdrawal of U.S. forces, most if not all banks remained closed in the final days of August despite that directive, CNN Business reported.

At the same time, outside funding and payments options are being cut off. The International Monetary Fund (IMF) declined to release upwards of a half billion dollars slated for disbursement. CNBC quoted Josep Borrell, High Representative of the European Union for Foreign Affairs and Security Policy and Vice-President of the European Commission as saying “No payments are going on to Afghanistan right now. No payments of development assistance until we clarify the situation. We have to see first what kind of government the Taliban are going to organize.”

That includes most if not all private companies as well. As The Wall Street Journal reported on Aug. 21, “The decision by wire-transfer services Western Union Co. and MoneyGram International Inc. to stop doing business in Afghanistan restricts the flow of overseas payments that are a key source of support for many Afghan families.”

Given the importance of typically small money transfers and remittances in an underdeveloped economy like Afghanistan, it’s a major blow to millions of consumers and microbusinesses.

‘Afghanistan’s banking system is in a state of collapse’

Afghanistan has for years relied on foreign aid for its economic stability. That government safety cushion is now gone. For the Afghan people, however, it’s a matter of survival.

Regional news site IndiaTV recently reported, “There [is] no cash inside the [ATM] machines, no operational banks, and no Western Union offices, which is where people from overseas would normally transfer money to.”

Illustrating the economic crisis, Al Jazeera News reported that Ajmal Ahmady, who was Acting Governor of the Central Bank of Afghanistan, fled on “a military plane at Kabul airport, where thousands sought to leave as the Taliban’s rapid territorial advance led to the collapse of the government.” In subsequent social media posts Ahmady lambasted the fallen government.

Afghanistan’s humanitarian crisis is as almost much about funds as it is about food.

“Afghanistan’s banking system is in a state of collapse, and people throughout the country are running out of money. And this cash crisis — partly due to the international community’s efforts to starve the Taliban of resources — is having an outsized effect on everyday Afghan citizens, leaving many without access to important services as the UN warns of a growing humanitarian disaster,” reported the MIT Technology Review on Aug. 20.

That story focuses, somewhat ironically, on Asef Khademi, a payments professional with the Afghanistan Payments Systems (APS) which was “incorporated as a limited liability company that serves as a co-operative established by and for the banking and financial industry in Afghanistan” and which intended to bring digital payments and data innovations to the country.

Efforts to bring more digital payments and remittance channels to the nation were proceeding as recently as April, when PYMNTS reported that “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. The goal is to raise $5.8 billion to support the country’s critical mining, energy and agriculture sectors.”

Such plans are up in smoke for now as Afghans struggle to find cash for daily needs.

The Associated Press reported, “The head of the U.N. food agency in Afghanistan says a humanitarian crisis is unfolding with 14 million people facing severe hunger following the Taliban takeover of the country.”

Businesses Help Refugees, With Crypto As A Possible Solution

While companies including Airbnb, Walmart, Verizon, and others are offering aid to tens of thousands of Afghani refugees, the financial situation in-country has no imminent fix.

A financial clampdown on the Taliban is meant to keep large international aid payments from being used to fund terrorist activities, a message that the White House has been leading with.

That is also the focus of the EU and IMF, but critics note that it leaves few if any options to the Afghan people for conducting commerce, being paid, or paying for vital goods and services.

And it’s not for lack of trying. In a recent interview, Lennix Lai, director of financial markets at cryptocurrency exchange OKEx, said the Afghan people “do need crypto as one of the mediums of transaction. That’s why we can see … traffic related to it within Afghanistan, [where] searches looking for Bitcoin, looking for Ethereum, [are] actually skyrocketing.”

Lai said crypto is being more closely watched than ever, adding, “We receive requests by law enforcement globally all the time, including in the U.S. I think cryptocurrency exchanges … normally have standard procedures already in place to work with law enforcement. If you really want higher transaction [amounts] because you’re doing real terrorist financing, it’s probably not a good idea using crypto due to the fact that all … transactions [are recorded on blockchain].”

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