KABUL (SW) – Shah Mohammad Mehrabi, a member of the High Council of the Central Bank of Afghanistan, said that Afghanistan’s economy was collapsing and that the United States could prevent it from collapsing.
In an open letter published by the Al Jazeera, he stressed that Afghanistan was facing one of the most acute crises and that the “antidote” to the crisis was available in New York.
He wrote that in August, the United States froze $9.1bn of Afghanistan’s national reserves held at the Federal Reserve Bank of New York. As a result, the economic situation in the country has deteriorated rapidly. The people of Afghanistan are increasingly unable to afford basic goods, its currency is facing hyper depreciation, and its already fragile economy is on the brink of collapse.
Make no mistake, a catastrophe is imminent. The Central Bank of Afghanistan is supposed to conduct monetary policy operations to control the US dollar to the afghani exchange rate and keep inflation at bay. It has historically leveraged this auction process to produce remarkably stable exchange rates and inflation for a developing economy, in the single digit percentages. But with no access to its dollar-denominated reserves, the Central Bank is not able to perform this critical market stabilising function, he wrote.
In a country already devastated by the twin crises of war and COVID-19, the desperate lack of dollars in the market is leaving importers unable to pay for their shipments. Food is becoming scarce and grocery stores are unable to fully restock, said the a member of the High Council of the Central Bank of Afghanistan.
He added that as prices rise, people are rushing to withdraw and spend their savings before the banking sector collapses. Private businesses are not able to fund operations, shutting down and laying off the privileged few who still have jobs. A growing number of Afghans are suffering from hunger, poverty, and a lack of access to basic goods and services. In short, the country is in a total humanitarian crisis.
While this will devastate every Afghan, the Taliban government in Kabul will avoid the worst of it. They will blame the US for the country’s economic woes – and so long as they can point to the assets held frozen under US control, the people will believe them, said the member of the High Council of the Central Bank of Afghanistan.
He added the choice for the US government is simple: continue down the path that would lead to total economic devastation for millions of people or do what is needed to help the Afghan people.
He proposed that the US allow the Central Bank of Afghanistan limited, monitored, and conditional access to $150m per month from Afghanistan’s foreign reserves – roughly half of what the Central Bank would auction off monthly in the past. This common-sense policy would unfetter the bank to fulfill its role of maintaining price stability and prevent this imminent crisis.
He stated the US would have the ability to verify how these funds are used via one of the independent international auditing firms that are still operating in Afghanistan. The transactions between the Central Bank and commercial banks take place on an electronic exchange where each transaction and its value are automatically recorded. If the US finds any misappropriation, it can cut off the funds at any moment. After all, the vast majority would still be deposited at the New York Federal Reserve. This type of leverage is a win-win for the US.
The Central Bank is an entity independent from the Afghan government. For decades, it has helped to achieve and maintain price stability and advance the economy, all the while remaining a beacon of hope and prosperity for Afghanistan. But if it is not allowed access to its reserves, that could all be lost, he added.
As the recent US engagement with the Taliban on the peace deal has shown, Washington has the power to negotiate many issues of national interest without hurting the economic future of the people of Afghanistan.
“Afghans deserve to be safe and prosper in their land. But right now, US policy is holding them back. The US must allow the Afghan people access to their own reserves in a monitored, common-sense way, or the country will collapse. We have the power to lift the Afghan people out of this crisis. For the sake of both my home and my adopted country, I hope we act on it”, he wrote.
