As American troops leave Afghanistan, U.S. dollars are also heading out the door.
The Afghani has dropped about 5 percent this quarter, the fifth-steepest fall among 84 so-called exotic currencies tracked by Bloomberg. It touched 60.8020 a dollar on May 20, the lowest in data going back to 2003, when currency reforms were completed after U.S. forces regained control from the Taliban.
The currency’s slide threatens to increase pressure on President Ashraf Ghani as he battles Taliban insurgents looking to retake power. Food and fuel prices are set to rise, worsening what the World Bank last month called a “fiscal crisis” in a nation where foreign donors finance two-thirds of its budget.
“This could be a turning point for the Afghan economy,” said Ahmad Masood, an economics professor at Kabul University. “If Ghani doesn’t bolster the currency, we could see widespread economic instability that would also help further the current security crisis.”
The Taliban are continuing to fight Afghan forces after a 13-year war that saw more than 2,300 American troops killed and cost almost $1 trillion. About 40 percent of Afghan towns and cities face a significant threat from Taliban insurgents, according to the United Nations.
At Sarai Shahzada, Afghanistan’s main financial market in central Kabul, currency traders with ample supplies of U.S. dollars were in high demand this week. In open air stalls and glass-enclosed booths, they sell everything from dollars to Pakistani rupees to the British pound.
The number of Afghans looking to buy dollars has risen 30 percent over the past month, according to Khan Mohammad Baz, head of the Afghan Currency Traders Association. He said the Afghani’s weakness stems from last year’s disputed election, which led to months of political uncertainty before the U.S. brokered a unity government with his main rival in September.
Eight months later, key cabinet posts are still empty. A finance minister was appointed only in January, and the central bank doesn’t yet have a full-time governor.
‘‘The security and the political situation have a direct impact on the rates of the Afghani,” Baz said in an interview in his cramped office in Sarai Shahzada. He wants the central bank to increase the size of its dollar auctions to boost supply in the country.
To preserve its foreign-exchange reserves of about $7 billion, the central bank has reduced the size of biweekly currency auctions to about $35 million from $100 million, said an official who asked not to be named as he’s not authorized to speak on the matter. The monetary authority is taking other steps to support the Afghani at about 57 a dollar, the official said without elaborating.
Afghanistan imports 15 times more than it exports. Most of its goods come from Pakistan, Russia, the U.S. and India, according to data compiled by Bloomberg. Growth is estimated to have slowed to 2 percent in 2014 from an average 9 percent between 2003-2012, the World Bank said in an April report.
The Afghani’s value has long reflected the nation’s political turmoil.
Before the Taliban took charge in 1996, various warlords and political parties printed notes and traded them in their strongholds. The rebel Northern Alliance, which once included Ghani’s deputy, successfully used cheap, Russian-printed Afghanis to destabilize the exchange rate, forcing the Taliban to close all money exchanges.
The latest bout of volatility has its winners and losers. Ahmad Jawad, 32, said he gained almost $1,000 over the past week by selling dollars for a premium. Naeem Sardar, 51, made the opposite bet, hoarding millions of Afghani at home.
“I will face a big loss if the central bank doesn’t do something,” he said.