(Bloomberg) -- The Taliban government has banned the use of foreign currencies in Afghanistan in a surprise move that could weigh on an economy struggling with a cash crunch and further isolate the country.
The move came as the Taliban were pushing for the release of billions of dollars of reserves overseas, which was frozen by the U.S. and its Western allies since the group swept into the power in August. Without these reserves, the central bank has struggled to maintain flows of dollars into the economy.
The militant group has ordered the public, from shopkeepers to businessmen, to conduct all trade in afghani currency for the sake of national interests and to help the economic situation, Taliban spokesman Zabihullah Mujahed said.
“The use of foreign currencies has negative effects on the country's economy,” he said in a statement. “Violators will be dealt with legally.”
It is unclear how the Taliban will enforce this ruling given that Afghanistan's economy has been propped by U.S. dollars since America invaded in 2001 following the 9/11 attacks. Two-thirds of Afghan banks' deposits and half of the country's national loans are in U.S. dollars.
The afghani has continued to depreciate against the U.S. dollar since the Taliban took over more than two months ago. The currency fell to record low of 91.03 per U.S. dollar on Wednesday after news of the ban surfaced the day before.
The ban on foreign currencies may see the Taliban to channel more afghani into the economy to meet huge demand in a country which has heavily relied on the U.S. dollar, said Juma Khan, an economics professor at Bakhtar University.
“The move could also potentially appreciate afghani currency in the short term, as well as allow the Taliban to purchase and save more dollars at a time the country's running out of dollars,” Khan said by phone.
Afghanistan's Fragile Economy Is Collapsing as Cash Disappears
Separately, the Afghan central bank on Wednesday doubled the weekly withdrawal limit per banking customer to $400, or 30,000 afghanis to ease the cash crunch, a move that may see locals rush to change their U.S. dollar holdings to the national currency.
The greenback is preferred over the local afghani to pay for imported goods and services as well as big-ticket transactions such as buying a home or paying for private school tuition. More pressingly, the ban could also complicate humanitarian aid from overseas, which will be crucial for the country as a harsh winter approaches.
“The world poured billions of U.S. dollars into the country” in terms of aid for the past twenty years and it is not clear how this will be done in the future once the afghani is the only currency allowed, Khan said.
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