But even a deal that injects some money into a humanitarian trust fund for Afghanistan appears unlikely to support the Central Bank of Afghanistan, which needs foreign currency to perform its basic functions. The bank, modeled after the Federal Reserve Bank of New York, sets monetary policy and the exchange rate and stabilizes rates by periodically selling dollars to private banks. The old civil servants who remained in Kabul continued to perform the bank’s core functions, conducting electronic auctions with the funds at their disposal, according to Shah Mehrabi, a board member of the Central Bank of Afghanistan, who is also a professor of economics at Montgomery College. in Maryland. But the bank may soon run out of foreign exchange. The entire banking system could collapse.
Mr. Mehrabi suggested that the Biden administration allow monthly transfers of small amounts of frozen funds for the sole purpose of auctioning dollars to private banks. He said such auctions are easy to monitor and can be cut off if the money is used for any other purpose. Such an arrangement would strengthen the hand of the technocrats who continued to operate under the Taliban. It could be conditional on their independence from the Taliban or the appointment of some technical staff. Refusing to release any part of the money while the Taliban is in power would remove the money as a source of pressure.
Given the 9/11 lawsuit, it may not be possible to release the frozen funds in New York in time to avoid a crisis. It may be more realistic to release money from banks in Europe, which hold smaller but still significant amounts of CBA money. As Afghanistan’s commercial banks are required to keep some reserves in the central bank, hundreds of millions of dollars in frozen offshore accounts are part of Afghan citizens’ life savings, which should not be unreachable because the Taliban has taken over the country.
It wouldn’t cost US taxpayers a single cent to issue letters of approval to European banks to make clear that they would not be penalized for giving private Afghan citizens access to their money. If this does not happen, the spectacle of Americans and Europeans pushing to alleviate a humanitarian catastrophe caused in part by the fact that many Afghans are cut off from their money will be dealt with.
There are other things the US government can do on the sidelines to ease the liquidity crunch. Before the Taliban took over, the Central Bank of Afghanistan signed a contract with a Polish company to print $8.5 million worth of banknotes. One batch of banknotes was delivered, but the rest remained in Poland. This contract must be honored. In the medium term, international agencies are proposing to pay salaries to Afghan civil servants directly, bypassing the Taliban-led ministries of education and health. Last month, the World Bank unfrozen $280 million in Afghan reconstruction funds that could soon be used for this purpose.
Such efforts will certainly help. But they will not affect human suffering if the banking system collapses. When banks split and fail, they exacerbate crises, as happened in Yemen, according to Dave Harden, an expert on the economies of conflicting countries.
Reasonable people can disagree about how much help the United States should give Afghanistan after two tragic decades of blood and treasure. It’s tempting to walk away completely. But self-interest dictates that Americans think clearly about the costs in the long run. Small efforts now can avoid big problems later – like other mass migrations in Europe. They can also maintain a foothold in the country. It lost the war, but that doesn’t mean every institution Americans worked with is destined to disappear. There is still plenty of time to bail out the Central Bank of Afghanistan.