The Taliban in Afghanistan Implemented the Cryptocurrency Ban| Analyze the Development of Digital Currency in the Middle East.

2022-09-02, 12:01

TL: DR

Since the Taliban takeover, Fiat currency has become difficult to get, and it has rendered a lot of people cashless. After the takeover, Afghans started to trade in Crypto as they had no way to receive or send money.

In 2022, the Taliban issued a national ban on cryptocurrency and arrested 16 local exchanges stating that it is against Islamic practice and sharia law.

The economy is on the verge of collapse. The country’s cash flow has been seized. They depended a lot on international aid, which was cut off as a form of sanction on the Taliban.

Tech enthusiasts say that crypto might be the only way to revive the economy, but this depends on whether the Taliban are willing to negotiate the terms of the ban.

Introduction

Reports from Chainalysis named Afghanistan one of the top 20 countries in the world adopting cryptocurrency in its report last year. After the Taliban took over Afghanistan in 2021, the situation left thousands of Afghans cashless. The major source of income became hundreds of dollars of Bitcoin, which some had stored up in virtual wallets. Cryptocurrency spread vastly in 2021 after the Taliban takeover. During this time, there was no other way to send or receive money. Crypto became a popular and easier way to move money in and out of the country, shutting off from the worldwide banking system due to high-level sanctions imposed on the militant group. These transactions were short-lived, however, as Afghanistan’s central bank issued and imposed a national ban on cryptocurrencies this month in June. The Taliban regime has seized 16 local exchanges in the northwestern city of Herat who went against orders to stop trading in digital currency. More than 20 companies into cryptocurrency are closed down in Herat.

Da Afghanistan Bank (Central Bank) said in a letter that trading digital currency has consequences that have caused a lot of problems including fraud; therefore, they should be closed. Other people who are familiar with the decision say that it is irrational and the Taliban have banned their only hope for financial resources.

The Reason Behind the Ban of Digital Currencies in Afghanistan.

Source: Gadgets360.com

The Taliban have on many occasions mentioned to traders and crypto-to-fiat exchanges that cryptocurrency is similar to “gambling”, making it haram – a forbidden act under Islamic law. They also included that the government intended for people to make use of the internal banks to transfer money, while most of the local financial services are limited and do not permit them to withdraw money at once.

For many afghans, trading in digital currency was the way out of the tunnel. Since they could not have access to physical funds, it was only right that the way out was to fund digital wallets. The ATN-News Report said that one of the principal reasons for the ban is the unstable nature of cryptocurrency and assets like the U.S dollar exiting the country since digital currency exchanges are not originally based in Afghanistan. The report also stated that another reason for the ban by the Taliban is that digital currencies are relatively new and the people are not used to the way it’s operated. Ghulam Mohammed Suhrabi, the leader of the fiat exchangers’ union claimed crypto was just a medium for fraud. This statement shows the line of thought of Indonesia’s National Religious Council, prohibiting cryptocurrency for Muslims, with the claim that digital currency does not conform with the parameters of Sharia Law and should not be adopted by Muslims. The head of the council said that the use of digital currency had features of uncertainty and harm.

The Impact of the Ban on Afghan Economy

For the first time in 20 years, the Taliban have taken control of Afghanistan and they have to deal with an economy on the edge of collapse. After the siege on August 15, the internal banking system froze, and with very limited access to physical cash. The economy prior to this was fragile and depended heavily on aid. In Afghanistan’s case, 40% of its GDP was gotten from international aid, exceeding the threshold of 10%. Before the siege, the country was heavily dependent on aid. Germany and the United States suspended their aid to the country alongside the World Bank, International Monetary Fund, and Da Afghanistan Bank (DAB) who have also frozen with the DAB reserving about $9bn, most of which is held by the US. As a result of the country’s finances being at a standstill, the civilians suffer inaccessibility to Fiat. Thus the value of their money is now even less.

There is a possibility that the solution that has been touted repeatedly in the last few months is cryptocurrency, with economists and tech enthusiasts saying it is the only way out of the financial crisis in Afghanistan.

One of the founders of the Falcon Investing Company, Mansoor, who trades in crypto and runs a crypto-to-cash exchange, said, “if this was introduced to the people earlier, then the banking system would have survived this hit.” He believes that conventional banking systems are too time-consuming as opposed to crypto, whose power is speed. Another hope for digital currency for this economy is the low fee charge compared with the usual banking or Hawala system. Where the Hawala system charges 4.5 percent per transaction, crypto offices make these same transactions without charges.

Despite this, skeptics say that if Afghans find it hard to embrace traditional financial institutions, getting them to adopt crypto will be time-consuming and difficult. Others, like the Deputy Director of Economic Cooperation at the Afghan Ministry of Foreign Affairs, say that Afghans should not be quick to adopt the currency if other advanced countries have not entirely accepted it. The host of The Plain Bagel, a YouTube Channel owned by Richard Coffin, says Afghanistan seems like a perfect example for crypto enthusiasts. Still, the volatile nature of the currency could increase the country’s investment risk to their daily expenses.

What Does This Mean for the State of Afghan and The Middle East?

With the current narrative, the civilians have little to no way of sending or receiving money. Using cryptocurrency seems to be the only way out, though many afghans are still uneducated in its use and are reluctant to accept it. The ban by the Taliban has made the situation unclear, but scholars believe that perhaps the Taliban are open to negotiating; there could be another way out for their economy.

On the bright side, the enthusiasts of the technology keep rooting for the adoption of crypto, though speculations carry a 50-50 chance of success for the economy. The fate of it lies with the regime of the Taliban.

As for the Middle East, the top three digital currency markets are Turkey, Lebanon, and the United Arab Emirates (UAE). With larger economic development and direct foreign investment, Dubai became the regional hub in the Middle East and has at least 1,000 cryptocurrency businesses operational this year and centers like the Dubai Multi Commodities Centre (DMCC) Crypto Centre, a gateway to a worldwide trade system in blockchain technology. The most highlighted digital currencies are digital currencies based on the blockchain. Afghanistan emerged in 20th place amongst the Middle Eastern countries, which are, in fact, the highest in the region, followed by Turkey in 26th place. Turkey had the highest transaction volume in the Middle East at over $130 billion. The digital currency has brighter potential in the Middle, but the stakes remain on whether its potential will be considered good enough.

Conclusion

Prof Gerges says in terms of the Afghan economy that, the Taliban have to, at this point, create ways to compromise on their politics and beliefs. This remains an open question, waiting for an answer. Hopefully, a reconsideration of the ban would set a revival for the collapsing economy.

Author: M. Olatunji, Gate.io Researcher
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