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Circulation of Pakistani currency in Afghanistan’s markets and its influences over Afghani

while the exchange of currency between a teller and customer.

Afghanistan has been neighboring Pakistan for almost 70 years since 1947. After the Soviet invasion of Afghanistan, Pakistan’s involvement both directly and indirectly has been unbearable and threatening for Afghanistan in terms of politics and economy, due to which the people of Afghanistan suffered a lot and almost all the institutions, companies and infrastructural organizations of Afghanistan were devastated.

However, Afghanistan has been rapidly transforming into a developing country over the last one and half decade, in the areas of education, economy, infrastructure and wealth, but still there are profound factors that are thought to be hazardous for the economic stability of Afghanistan, which even can cause the devastation of commercial and financial competency of Afghanistan.

Since the Taliban regime came into force, both the financial and military influences of Pakistan were built up over Afghanistan specifically on the regions located narrow the Durand line. The people of Afghanistan were financially dependent on Pakistan and its currency (Rupee), which is now a burning problem for the economic stability of Afghanistan and the value of the currency (Afghani) in the international market.

During the Taliban administration, the chairman of the Taliban’s central Bank laid off the contract with Russian firms for printing the currency of Afghanistan(Afghani), at that time the country’s currency was devalued against US dollar from the rate of 1$=43 Afghani to 1$=21000 Afghani. In the times of Taliban and Mujahedeen people used to carry money in bags to buy a tiny product, this practice was considered problematic for the people, because it was a tedious burden for the people to carry such amount of money all the time.

Nevertheless, before the US and NATO involvement in Afghanistan, the Mujahedeen, warlords, forgers and other political and foreign waged groups, each were using their own printed notes within their precinct territories, that had no standardization and approval from international financial organizations, at that point of time the value of Afghani had depreciated drastically due to the overwhelming supply in the market with considerably low demand.

Now, let us make it more relevant, during the Karzai’s administration the government of Afghanistan introduced a new currency called Afghani(AFN). Although, it was then approved and modified by the international organizations and slowly the flow of Afghani was gotten underway, but the eastern and southeastern provinces of Afghanistan were still affected by Pakistani currency(Rupee), moreover, the circulation of Rupee in those markets were on a large scale, and that was/is a consequential hurdle for the value of Afghani and country’s economic stability.

Almost all the dealings are being done in Rupee in the biggest cities of Afghanistan such as (Jalalabad, Kandahar, Kunar, Paktya, and Khost), Which is an evident challenge for Afghani to be attenuated. If such practice is taken further it is not so far for Afghani to lose its value both in the international market and domestic market. Furthermore, it will cause unwholesome consequences in terms of the circulation of Afghani to be stopped, secondly, the whole monetary system of Afghanistan will suffer detrimental impacts, the country’s economy will be completely dependent on Pakistan.

Even so, recently we witnessed the economic situation of Pakistan which was pushed into an adverse stage, due to which the external debts of Pakistan soared to 95097 USD Million in the second quarter of 2018 from 91761 USD Million in the first quarter of 2018, this not only influences Pakistan’s economy but can Afghanistan’s as well, only if the use of Rupee is continued in Afghanistan, because people who deal in rupee in spite of Afghani in Afghanistan’s markets will have to encounter miserable results as the external debts of Pakistan are going high day by day.  A few years back the chief of police of Kandahar General Raziq banned the use of Pakistani currency in the markets of the mentioned province, which resulted in the sense of volition in people to prioritize the utilization of Afghani.

After all, people in Afghanistan will have no other option rather than to burn their Rupee notes, if only they happen to keep doing transactions in Rupee in the result of the devaluation and depreciation of Rupee. The wholesaler and retailers ought to give priority to Afghani and put an end to the use of Rupee, otherwise, they will confront unfortunate consequences concerning to huge losses in terms of monetary losses and spoliation of products.

Additionally, those markets can be easily controlled by Pakistan’s central bank with regard to the changes in their monetary system, which will definitely result in wastage of the Rupee notes, then people will have no other alternative to recover the losses being happened to them, as their basic dealings are done in rupee, hence they are completely dependent on Pakistani currency.

Earlier in Karzai’s tenure, as president Pakistan’s border police often used to shut down the Turkham border which is considered to be one of the topmost commercial ports of Afghanistan, this practice was unhealthy for Afghanistan’s economy. Moreover, the prices of goods and services in the markets of Afghanistan used to go sky-high and the rate of inflation was being increased.

These all had to happen because our economy totally relied on Pakistan to a significant level at that point of time.

Even though, the next administration has taken considerably effective steps in this regard. In May 2016, India signed a series of twelve memorandum of understandings with Afghanistan and Iran which centered upon the Port of Chabahar. This trilateral transit agreement was signed in order to outset transit between Afghanistan and India via Chabahar port (Iran). This was actually a grand action taken by the Afghanistan government to prevent the high rate tariffs on Indo-Afghan trade being imposed by Pakistan. This practice is indeed an indication for the Afghan marketers to avoid the flow of rupee in their day to day transactions. Otherwise, their savings in rupee will result in nothing other than merely ordinary papers with zero value.

The government of Afghanistan must seek several appealing strategies concerning to the financial system, there need to be significant changes in tax regulations and trade laws. In order to overcome the above-jotted issue, I have come up with few insights that are:

  1. To impose high tariffs on Pakistan’s transit with central Asia via Afghanistan, this will be a revoking indication for Pakistan’s economy, since other routes for them will be expensive enough to transit on.  Furthermore, this practice will not only put an end to the flow of Pakistani currency in Afghanistan’s markets but will increase the rate of Afghani against Rupee as well.
  1. To Increase tax rates on products being imported from Pakistan. It will be a red signal for Pakistan’s manufacturing companies because Afghanistan is thought to be a profit-making market for Pakistan to market their products with zero competition.
  1. The Government of Afghanistan and the concern authorities must take earnest actions in order to stop smuggling Afghanistan made products (rugs, dry fruits) being illegally smuggled to Pakistan by mafia groups across the border, which is impotent for Afghanistan’s manufacturing companies to export their products on their own brand name and patent marks.
  1. The tax authorities must bring gravest changes in their fiscal policies in order to impose high rate taxes on those markets in Afghanistan, where the circulation of Rupee dominates Afghani, this way the marketers may compel to avoid the use of Rupee.
  1. The other alternative to alleviate the use of Rupee in Afghanistan’s markets is to attract foreign direct investments and multinational companies into Afghanistan. FDIs (Foreign direct investment) and MNCs (Multinational companies) are productive platforms for any country to both appreciate the value of its currency in the international market and increase exports as well. Exports in the sense will be increased when MNCs and FDIs start doing business and export the goods and services to other countries from that particular country.

Although Afghanistan is out of the influences of neighbors to a substantial level, still there are complications as one of them inscribed above, that are to be taken into consideration by high ranking officials, concern authorities and the public. if neglected it will result in a perilous invasion over the economy and financial stability of Afghanistan, which will revive the 90s era of Afghanistan’s economy and monetary system.

By:  Hamayun Khan

       M.B.A

       [email protected]

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