May 19, 2022

U.S. Stops Taliban getting Afghanistan’s financial assets

The Taliban will be hard-pressed to tap Afghanistan’s financial assets and manage their new economy after the U.S. froze the country’s reserves..

A Biden administration official told patrioticbets that any central banking assets the Afghan government has in the United States will not be made available to the Taliban. That would include any accounts managed by the Federal Reserve and other U.S. banks.

A Treasury Department official also said that it is taking steps to prevent the Taliban from accessing the International Monetary Fund’s Special Drawing Rights. SDRs are basically an IOU that countries can exchange for cash.

That could pose a significant headache for Taliban leaders given the U.S. dollar’s important role as the globe’s reserve currency. I

Economic sanctions imposed by the Treasury Department and the Federal Reserve can make it far more difficult for foreign governments to run an economy without access to dollar clearing since everything from oil to food imports is financed in large part with the dollar.

“The new Afghan government has a real challenge in getting goods and services delivered to the country with the US imposed blocking order preventing US banks from making payments on their behalf, clearing settlements,” Fundstrat policy strategist Tom Block wrote Wednesday. “Today, with the uncertainty overhanging the Taliban government, any seller is going to want to be paid in some widely held currency and USD is almost always the preferred currency.”

Block previously served as vice chair to the State Department’s Advisory Committee on International Economic Policy, where he advised the U.S. government on how to use the U.S. dollar and American banks.

“To make matters worse from an Afghan perspective,” he continued, “the former government, having a strong strategic tie to the USA, had billions of USDs in their US Accounts, and with the blocking order they lose access to this money.”

Ajmal Ahmady, Afghanistan’s central bank chief, wrote on Wednesday that he expects the U.S. Treasury Department to lock the country’s assets and force the Taliban to impose capital controls. That, in turn, will foster inflation and devalue local currency, he said on Twitter.

Ahmady, who fled Afghanistan on Sunday as the Taliban took control of the capital of Kabul, is the acting head of Da Afghanistan Bank, or DAB.

Afghanistan had about $9 billion in reserves as of last week and the Federal Reserve was holding $7 billion of the country’s assets, Ahmady wrote.

“I believe local banks have told customers that they cannot return their dollars — because DAB has not supplied banks with dollars,” Ahmady wrote. “This is true. Not because funds have been stolen or being held in vault, but because all dollars are in international accounts that have been frozen.”

He added that he received a phone call on Friday that indicated “there would be no further USD shipments (we were expecting one on Sunday, the day Kabul fell) On Saturday, banks placed very large USD bids as customer withdrawals accelerated.”

The Treasury Department declined to comment. The Federal Reserve did not immediately respond to CNBC’s request for comment.

The Taliban sped across Afghanistan last week, taking control of province after province following the withdrawal of U.S. troops. That effort, the speed of which caught the Biden administration by surprise, culminated in the flight of Afghan President Ashraf Ghani and the fall of Kabul on Sunday.

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