'In November, the U.N. Development Programme (UNDP) warned its members there could be a “colossal” impact if the banking system collapses, along with the social impact related to the crumbling of the economy.'
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US Treasury Tells Banks They Can Process Aid Payments to Afghanistan, February 2, 2022
'UNITED NATIONS, Feb 3 (Reuters) - The United Nations has about $135 million in the bank in Afghanistan but is unable to use it because the Taliban-run central bank cannot convert it to the afghani currency, a senior U.N. official said on Thursday.'
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U.N. has millions in Afghanistan bank, but cannot use it, February 4, 2022
'..Aid is not enough. Commercial activity is what feeds a nation.
..
Mr. Mehrabi has proposed that the Biden administration allow monthly transfers of small amounts of the frozen funds for the sole purpose of auctioning off dollars to private banks. Such auctions are easy to monitor and could be cut off if the money was used for any other purpose, he said. Such an arrangement would bolster the hand of technocrats who have continued to work under the Taliban. It could be conditioned on their independence from the Taliban or on hiring certain technical staff members. Refusing to release any portion of the funds as long as the Taliban are in power would remove the money as a source of leverage.
Given the Sept. 11 lawsuit, it may not be possible to free up the funds frozen in New York in time to stave off a crisis. It may be more realistic for funds to be released from the banks in Europe, which hold a smaller but still significant amount of the Afghanistan central bank’s money. Since commercial banks in Afghanistan are required to keep some reserves in the central bank, hundreds of millions of dollars in the frozen overseas accounts are part of the life savings of Afghan citizens, which should not be rendered inaccessible because the Taliban took over the country.
There are other things the U.S. government can do on the margins to ease the liquidity crisis. Before the Taliban took over, the Afghan central bank inked a contract with a Polish company to print about $8.5 million worth of bank notes. One batch of notes has been delivered, but the rest remain in Poland. That contract should be fulfilled. In the medium term, international agencies are proposing to pay Afghan civil servants directly, bypassing the Taliban-led Ministries of Education and Health. Last month, the World Bank unfroze $280 million in Afghan reconstruction funds that could soon be used for this purpose.
..
..But self-interest dictates that Americans think clearly about long-term costs. Small efforts now could avoid big problems later — such as another mass migration in Europe. They could also preserve a toehold in the country. The war has been lost, but that doesn’t mean every institution that Americans worked with is destined to disappear. There’s still time to save Afghanistan’s central bank.''..Afghanistan .. Although the markets are full of food, too many people lack the money to buy it .. Even those people lucky enough to have savings in the bank have to line up for hours to withdraw a small fraction of it. Banks are so low on cash that they have placed a limit on withdrawals.
..
Right now the entire financial system in Afghanistan risks collapse. Ordinary people who have nothing to do with the Taliban have been largely cut off from the international banking system, simply because they live in Afghanistan. Even though U.S. Treasury Department officials say that the central bank of Afghanistan is not under sanctions, financial institutions around the world are treating it as if was. Foreign banks are refusing to wire money to Afghanistan, not only because they don’t want to deal with the reputational risk, but also because they fear that the long arm of the U.S. Treasury might one day punish them for it. Many banks say it is not worth the hassle. As a result, it has been difficult to get cash into the country.
..
If the formal banking system in Afghanistan collapses, then the entire economy could be driven into the shadows, where illicit activities like kidnapping and drug trafficking would play an even bigger role than they do now. Entrepreneurs .. would struggle to survive.
..Aid is not enough. Commercial activity is what feeds a nation.
“The economy is not just in free fall; it’s being strangled,” said David Miliband, president and chief executive of the International Rescue Committee. “We’re a humanitarian agency. But we want to say loud and clear that you can’t solve this problem of mass malnutrition only with a humanitarian effort.”
..
But even a deal that funnels some money into a humanitarian trust fund for Afghanistan seems unlikely to shore up Afghanistan’s central bank, which needs foreign currency to perform its core functions. The bank, which is modeled on the New York Federal Reserve, sets monetary policy and the exchange rate and stabilizes prices by periodically auctioning off dollars to private banks. Longtime civil servants who remained in Kabul have continued to perform the bank’s core functions, conducting electronic auctions with the cash they have on hand, according to Shah Mehrabi, a member of the Afghan central bank’s governing board who is also an economics professor at Montgomery College in Maryland. But the bank could soon run out of foreign cash. The entire banking system could fall apart.
Mr. Mehrabi has proposed that the Biden administration allow monthly transfers of small amounts of the frozen funds for the sole purpose of auctioning off dollars to private banks. Such auctions are easy to monitor and could be cut off if the money was used for any other purpose, he said. Such an arrangement would bolster the hand of technocrats who have continued to work under the Taliban. It could be conditioned on their independence from the Taliban or on hiring certain technical staff members. Refusing to release any portion of the funds as long as the Taliban are in power would remove the money as a source of leverage.
Given the Sept. 11 lawsuit, it may not be possible to free up the funds frozen in New York in time to stave off a crisis. It may be more realistic for funds to be released from the banks in Europe, which hold a smaller but still significant amount of the Afghanistan central bank’s money. Since commercial banks in Afghanistan are required to keep some reserves in the central bank, hundreds of millions of dollars in the frozen overseas accounts are part of the life savings of Afghan citizens, which should not be rendered inaccessible because the Taliban took over the country.
There are other things the U.S. government can do on the margins to ease the liquidity crisis. Before the Taliban took over, the Afghan central bank inked a contract with a Polish company to print about $8.5 million worth of bank notes. One batch of notes has been delivered, but the rest remain in Poland. That contract should be fulfilled. In the medium term, international agencies are proposing to pay Afghan civil servants directly, bypassing the Taliban-led Ministries of Education and Health. Last month, the World Bank unfroze $280 million in Afghan reconstruction funds that could soon be used for this purpose.'
- New York Times,
Let Innocent Afghans Have Their Money, January 14, 2022
Context(To learn to train for peace - Train for Peace) - '..the United States has no compelling military need to keep a permanent troop presence in the Middle East.'