Most of us have watched the events of August in Afghanistan with dismay. For those of us with an eye on the country’s precarious financial position, the long lines of people queuing outside banks to withdraw limited amounts of money reminds us of just how difficult life is for Afghanis right now, and there is little reason to for optimism about the future. Charles Hoskinson, the CEO of IOHK and Cardano, believes that cryptocurrencies offer a solution to the Afghan people.
In an interview with CNBC on 1st September, Hoskinson said, “ “cryptocurrencies will play a larger role in Afghanistan […] in the war for and against the Taliban forces,” not least because there is a massive need for financial privacy-preserving technologies.
Let’s not forget that the bulk of Afghanistan’s reserves –around $9 billion – are actually stored in the Federal Reserve Bank of New York, and access to them has been frozen, a fact the Taliban only recently discovered. The World Bank and IMF have also halted access to significant sums earmarked for the country. Ajmal Ahmady, former acting governor of the Afghan central bank, Da Afghanistan Bank (DAB) reportedly had to explain to Taliban leaders that the country’s assets were not in the country, and that DAB was “reliant on obtaining physical shipments of cash every few weeks,” the Biden administration had cancelled shipments as the Taliban approached Kabul. Meanwhile a Biden administration said, “Any central-bank assets the Afghan government have in the United States will not be made available to the Taliban.”
So where will the Taliban get money from? To date, the organisation is largely funded by drug money from Afghanistan’s opium poppy crops, but whilst this might have sustained them, it’s not enough money to run a government, which means there will soon be a financial crisis in a country that already depended on foreign aid to support so much of its infrastructure. Furthermore, analysts predict that the economy will collapse, with prices exploding into hyperinflation.
The rise of crypto adoption
Which brings us back to crypto for the Afghan citizen who wishes to evade the Taliban’s attempts to track personal spending or seize their crypto assets. For example, Western Union has suspended its services in the country until further notice last week — limiting the means available to Afghani citizens seeking to transfer their assets internationally. However, there are already many organizations that have shifted to accept cryptocurrencies in an effort to facilitate funding of basic needs and medical care for the Afghan people arriving as refugees in western countries. This does not answer the needs of those left behind.
Crypto adoption appears to have been rising in Afghanistan over recent years, with the country currently ranking 20th according to Chainalysis’ 2021 Global Crypto Adoption Index. It is notable that other countries with poor financial infrastructures, such as Pakistan, Venezuela, Vietnam and the Philippines also rank high on the index.
Cryptocurrency exchanges in Afghanistan
There are a number of cryptocurrency exchanges operating in Afghanistan, including Binance. CNBC suggests the current situation is “a perfect test case for the usefulness of bitcoin and other cryptocurrencies.” One young Afghan crypto trader interviewed by CNBC said he has been keeping a very close eye on his crypto portfolio on Binance, as the local currency touches record lows and nationwide bank closures make it next to impossible to withdraw cash. It doesn’t give him access to cash, in a majority cash economy, but it does give him peace of mind that some of his wealth is safeguarded against economic instability at home. It also offers him and other crypto holders access to the global economy from inside Afghanistan, as well as certain protections against spiralling inflation.
Another young trader in Kabul said he sees crypto as the safest place to park his cash. “If a government isn’t formed quickly, we might see a Venezuela-type situation here.” He isn’t alone in his thinking. Google trends data shows that web searches in Afghanistan for “bitcoin” and “crypto” rose sharply in July just before the coup in Kabul.
It is difficult to be definitive about how crypto could help Afghanistan, and the current number of crypto owners there is well concealed by the use of VPNs, plus nobody there is talking about it loudly, because most digital currency supporters inside Afghanistan often don’t want others to know they exist. There are also multiple barriers to entry for citizens: complex on-ramping processes, low Internet access and unreliable electricity leading to daily outages. Another factor is that 85% of the country is unbanked. So people wishing to deal in crypto have to get creative, usually through international contacts. One trader said, “It’s very easy in Pakistan,” he said. “Most people have relatives in Dubai, who buy crypto for them using their credit cards.” This situation requires a great deal of trust, because when the person wants to liquidate their crypto stake, relatives will sell it for them and use the hawala system, an honour-based system of credit common in Asia and the Middle East, to transfer the funds across the border to Afghanistan.
At the moment the situation is so unstable that crypto traders are unable to operate, and are resigned to HODLing until a government is formed. But many of the enthusiasts are determined to teach fellow Afghans about the benefits of owning crypto, with grassroots adoption coming down to one Afghan teaching another about how cryptocurrencies like Bitcoin work. It may be some time before we see much movement in crypto in the country, but it is going to be something to watch out for and see what happens.