Focus on introduction of new currency

In a major step towards restoring economic stability in the war-ravaged country, Afghanistan's President Hamid Karzai in an address to the nation broadcast from the capital, Kabul, on Wednesday announced the introduction of new currency notes. "Today I have some good news for all Afghans, and I hope that every Afghan will be pleased with the announcement and be hopeful for our country's future," he said. He asserted that the decision had been reached in response to Afghan and foreign experts who had advised the new government to replace the currency and reform Afghanistan's banking system. "This will help in controlling the massive inflation and stabilise the economy," Karzai said. Outlining the reasons for the move, the governor of Afghanistan's Central Bank, Anwar ul-Haq Ahadi, told IRIN that the value of the current afghani was low, thereby rendering transactions difficult. At the existing currency rate, "10,000 afghanis are worth 25 [US] cents"," he said. "Henceforth, however, people will no longer have to carry bags full of money whenever they want to buy something." Ahadi went on to say that the Central Bank [Da Afghanistan Bank] had not been in control of the printing of banknotes, and had therefore been unable to formulate a meaningful monetary policy. "We do not know how much money is in circulation now," he said. (Three different versions of the afghani are in circulation - all printed in Russia.) The state of Afghanistan's finances is much the same as everything else in the country. A combination of fighting, bad governance and unruly faction leaders has served to debase the currency making it worth little more than the paper it is printed on. The afghani has lost over 99.9 percent of its value over the past 30 years. The central bank's operations virtually ground to a halt after the fall of President Najibullah's government in 1992. The government of the mujahidin, which then took over, issued massive amounts of currency, much of it in notes of very high denominations, resulting in hyperinflation. The banking system further contracted in 1996 when the Taliban captured Kabul and banned the collection and payment of interest. However, although these hardline Muslim militants controlled the headquarters of the central bank, they never succeeded in gaining control over the country's money supply. Ahadi said he expected that with the introduction of the new currency notes the central bank would take control of the printing of money and engage in formulating a meaningful monetary policy - essential to the success Afghanistan's postwar reconstruction. "The bank would then be able to keep prices stable and maintain standard exchange rates for the currency," he explained. Although the new currency will also be the afghani, its value will be 1,000 times that of its predecessor. Moreover, printed in Germany, it incorporates all the security features of the euro. The new afghani banknotes will be issued in denominations of one, two, 10, 50, 100, 500 and 1,000, each displaying national monuments like the Blue Mosque in the northern city of Mazar-e Sharif. The new currency will begin circulating on 7 October. The Central Bank will replace the old currency over a period of two months. "No-one will be hurt by the replacement of the currency," Ahadi stressed, adding that the bank would even exchange the "Jumbishi" version of the afghani printed in Russia for Gen Abdul Rashid Dostum, the warlord controlling northern Afghanistan. Money dealers in Kabul's open-air currency market - known as the Saray-e Shahzada - received the announcement of the new afghani with cautious optimism. "We are happy and hope that it will contribute to stability," Abdul Wali, a young dealer in the market, told IRIN. "We are optimistic, but we don't know all the details," he said. Haji Hafizullah Salim, one of Abdul Wali's colleagues, told IRIN that people have to make sacrifices for the sake of a smooth transition. "Our currency was only functioning in Kabul. Now it will have international recognition and value," he said, noting that the initiative could be the first major stride towards the revival of the Afghan economy. Meanwhile, the past three days have witnessed massive fluctuations in exchange rates because of speculation over the new currency. On Wednesday morning the US dollar was worth about 45,000 afghanis, but rose to 52,500 on Thursday - the lowest value for the afghani in 10 months. However, Ahadi dismissed such trends. "The development has no economic basis, it is based on rumours," he said. Commenting on Wednesday's announcement, Horst Kohler, managing director of the International Monetary Fund (IMF) welcomed the new currency's introduction saying the authorities' decision to introduce a new currency was an important step in their efforts to establish macroeconomic stability and to create an environment that was conducive to restoring sustainable economic growth in Afghanistan. The new afghani would also be a symbol of national sovereignty and unity. "The authorities fully recognise the outlook for the currency will to a large extent depend on the fiscal and financial policies of the government, and the Fund welcomes the authorities' demonstrated commitment to implement sound fiscal and monetary policies," he said.