William Byrd, Ph.D.
Afghanistan’s precarious economy is facing a new set of multidimensional risks as humanitarian aid — delivered in massive shipments of U.S. cash dollars — shrinks rapidly amid competing demands from other crises around the world. The dollar inflows, moved under U.N. auspices, have helped stabilize the Afghan economy, cover its mammoth trade deficit, and inject monetary liquidity into commerce. With much smaller cash infusions, in line with a general reduction in aid, the suffering of Afghanistan’s poverty-stricken population is likely to increase.
Minimizing the potential economic damage will demand sound macroeconomic management by the Taliban regime. Among other measures, the country’s economic policymakers will need to organize a gradual depreciation of the excessively strong exchange rate and ensure that there are adequate amounts of Afghani currency notes in circulation.
Despite strongly disapproving of the Taliban's destructive policies on gender, other countries and international agencies can play a supportive role by facilitating production of more Afghani banknotes as needed and allowing investment income from the Afghan Fund in Switzerland (comprising part of Afghanistan's frozen foreign exchange reserves) to be used for macroeconomic stabilization. This can be done without turning any funds directly over to the Taliban.
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