Historical Sketch

At the beginning of the 18th century, local states were formed around Qandahar, Herat and other centres. With the Durrani dynasty coming to power in 1747, Qandahar gained the upper hand. Members of the Barakzai dynasty, who took power in Qandahar in 1823, assumed the title Emir of the Afghans. A British protectorate was established in 1880. The consolidation of the Afghan state was concluded in the early 20th century. In 1919, the protectorate was formally ended, and in 1926, Afghanistan was elevated to a kingdom. The fall of the monarchy in 1973 triggered a long period of instability, culminating in the Soviet invasion of 1979, and the subsequent civil war which ended in the establishment of an Islamist regime. It was overthrown by the US-led invasion of 2002, but the newly established central government has failed to introduce stability during the two decades of Western intervention. The United States withdrew the troops in mid-2021, and the Islamist Taliban regained power within a couple of days and re-established the Islamic Emirate of Afghanistan.

Monetary History Overview

Until the late 19th century, Afghanistan's monetary situation was in disarray. Circulation was dominated by a multitude of hammered silver and copper coins in varying standards, complemented by occasional gold coins. In 1890, emir Abdul Rahman decreed a coinage reform. The coin weight of Kabul was declared the nationwide standard, creating the Afghan Rupee as a silver currency. A central mint was established in Kabul, and the milled coinage gradually replaced the earlier coins. In 1919, the government began issuing paper money, which failed to gain wide acceptance with the population. In 1926, the monetary system was reformed, and the 1st Afghan Afghani was created as a new decimal currency. The issue of paper did not proceed much further as there was no banking infrastructure in the country. In 1933, a first commercial bank was founded and got mandated to organize the government's paper money issuance. In 1939, the state-owned Bank of Afghanistan took over the central bank role. The value of the Afghani was loosely attached to the Indian Rupee but fluctuated on the market. In the 1940s, exchange rate got fixed against the US Dollar. However, all this was formalized only in 1963, when the reform process of the currency came to a conclusion. The 1978 communist coup and the subsequent Soviet invasion isolated Afghanistan politically and economically. The currency became inconvertible and the rate got frozen at an artificial value. After the Soviet withdrawal in 1989, the Afghan civil war broke out. As a result, the currency area disintegrated, as the individual factions produced and issued unbacked paper money. In 1993, the Afghani was traded at a commercial exchange rate and in 1996, it got re-pegged to the US Dollar at an again artificial rate, while transactions were conducted at the so-called "bazaar rates". The new regime that got installed after the US-led invasion of November 2001 managed to get the monetary situation under control. In September 2002, currency reform cut three zeros, and the 2nd Afghan Afghani became the new unit of account. All the wartime banknotes were withdrawn. The currency was devalued by 90% against the former official rate so that the value corresponded more or less to the earlier "bazaar" free rates, and the exchange rate got re-pegged to the US Dollar. In 2005, the Afghani was floated, and has remained relatively stable since then. The return of the Taliban government in 2021 brought back the political and economic isolation of Afghanistan. The Afghani's official exchange rate has remained stable since then.

Afghanistan joined the International Monetary Fund (IMF) on 14.07.1955.

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