Taliban fighters stand guard outside an entrance gate outside the Interior Ministry in Kabul on August 17, 2021.
Javed Tanveer | AFP | Getty Images
The Taliban will find it difficult to tap into Afghanistan’s financial assets and manage their new economy after the United States froze the country’s reserves and halted shipments of dollars to the country.
A Biden administration official told CNBC on Wednesday that the assets of the Afghan government’s central bank in the United States would not be made available to the Taliban. This would include all accounts managed by the Federal Reserve and other US banks.
Separately, a Treasury Department official said he was taking steps to prevent the Taliban from accessing special drawing rights from the International Monetary Fund. SDRs are essentially an IOU that countries can exchange for money.
These officials spoke on condition of anonymity in order to speak freely about the fluid developments in Afghanistan and the administration’s potential to change course.
SDRs are printed in the fund, distributed to member countries, and can be exchanged for US dollars that the US is obligated to provide. SDR reserves worth $ 450 million are currently expected to be released next week in Afghanistan.
This could pose a significant headache for the Taliban leadership given the important role of the US dollar as the global reserve currency.
Economic sanctions imposed by the Treasury Department and the Federal Reserve can make it much more difficult for foreign governments to run an economy without access to dollar clearing, because everything from oil imports to food imports is funded in much with the dollar.
“The new Afghan government has a real challenge in getting goods and services delivered to the country with the US-imposed freeze order preventing US banks from making payments on their behalf and settling settlements,” Fundstrat policy strategist Tom Block wrote on Wednesday. “Today, with the uncertainty hanging over the Taliban government, any seller will want to be paid in a widely held currency and the US dollar is almost always the preferred currency.”
Block previously served as vice chairman of the State Department’s Advisory Committee on International Economic Policy, where he advised the US government on how to use the US dollar and US banks.
“To make matters worse from the Afghan point of view,” he continued, “the former government, having a close strategic link with the United States, had billions of US dollars in its US accounts, and with the ‘blocking order, they lost access to that money. “
Ajmal Ahmady, the head of the Afghan central bank, wrote on Wednesday that he expects the US Treasury Department to block the country’s assets and force the Taliban to impose capital controls. This, in turn, will promote inflation and devalue the local currency, he said on Twitter.
Ahmady, who fled Afghanistan on Sunday when the Taliban took control of the capital Kabul, is the acting director of the Da Afghanistan Bank, or DAB.
Afghanistan had about $ 9 billion in reserves last week and the Federal Reserve held $ 7 billion in the country’s assets, Ahmady wrote.
“I think the local banks told customers they couldn’t return their dollars – because the ATM did not provide the banks with dollars,” Ahmady wrote. “That’s right. Not because funds were stolen or kept in a safe, but because all the dollars are in international accounts that have been frozen.”
He added that he had received a phone call on Friday stating “that there would be no more USD shipments (we expected one on Sunday, the day Kabul fell). On Saturday, the banks placed de very big offers in USD as customer withdrawals accelerate “.
The Treasury Department declined to comment. The Federal Reserve did not immediately respond to CNBC’s request for comment.
The Taliban raced through Afghanistan last week, taking control from province to province after the US troops withdrew. The effort, the speed of which surprised the Biden administration, resulted in the flight of Afghan President Ashraf Ghani and the fall of Kabul on Sunday.
While President Joe Biden has defended his decision to continue with the pullout, measures to freeze Afghan assets represent some of the last available levers Washington can pull to help prevent a growing humanitarian crisis.
The Treasury and the Fed have historically used sanctions to punish foreign governments for a wide range of activities.
The Trump administration, for example, helped rock the Iranian economy after promising to sanction any country that buys oil from Tehran or does business with Iran’s Revolutionary Guards.
Iranian crude exports have plunged more than 80% thanks to sanctions reimposed after former President Donald Trump withdrew the United States from the 2015 nuclear deal.
– CNBC’s Sara Eisen contributed to this report.