Banking Crisis in Afghanistan

Today we are talking about the collapse of the banking system in Afghanistan. No one really knows what is going on at this point, but I have tried to gather all the information reported in the news and put it in one video. Whenever there is an economic crisis going on in the world that is this dramatic, I think it is important to try and figure out what happened and gain a better understanding of the situation. WATCH NOW

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NEWS ARTICLES REFERENCED IN THIS VIDEO:

https://www.business-standard.com/article/international/taliban-restricts-bank-withdrawals-in-afghanistan-to-200-per-week-121082900338_1.html
https://www.cnn.com/2021/08/27/economy/afghanistan-bank-crisis-taliban/index.html
https://www.reuters.com/world/asia-pacific/exclusive-taliban-launch-charm-offensive-with-afghan-banks-amid-funding-fears-2021-09-01/
https://gandhara.rferl.org/a/afghanistan-economic-turmoil/31440776.html

VIDEO SUMMARY

On August 15, the Taliban took control of Afghanistan. On August 31, two weeks later, the last US troops were removed from Afghanistan. This was an overthrow of the government by force, and it is not recognized by the international community. On August 16, the International Monetary Fund suspended all funding to the country. On August 17, the European Union and Germany announced they would cut off all development funding. On August 25, the World Bank suspended all funding to the country.

Many fear that Afghanistan is on the brink of economic collapse. 75% of the Afghanistan civilian budget and defense budget was paid for by the United States and others. With the US leaving, many of the paychecks for those jobs in Afghanistan disappear. So the first problem is the Afghanistan economy shrinks almost overnight. But the problem is far worse.

Over the last twenty years, the US has set up a democracy in Afghanistan patterned after the US. But that is not all they did. The US also set up a banking system based on the US dollar. The US set up an Afghanistan central bank funded by around $9 Billion. But the reserve currency is kept mostly in the United States. So when the Taliban took over, the US just cut off all access to their reserve funds.

Afghanistan suddenly finds themselves without any cash. The Afghan people are scared and this caused a run on the banks. This is when everyone rushes to the banks to withdraw their money at the same time. The banks did not have any money and so all the banks shut their doors on August 15, and stayed closed for two weeks. On August 29, the new Taliban government ordered banks to open their doors again, but only allow people to withdraw $200 per week. As you can imagine, it is impossible to run a business or pay employees on $200 per week. But even at $200 per week, the Taliban is still going to run out of money, which would mean all the banks would fail.

It is important to remember that 20 years ago there was almost no banks in Afghanistan. It was a primarily cash and barter economy. A large part of that economy was generated by the Taliban growing illegal drugs. The new Taliban government has claimed that they are no longer going to participate in the drug trade, but without the drugs, where is the money going to come from? By setting up banks, the US allowed access to things like debt, and savings accounts. Too much debt can be a bad thing, but the right amount of debt will grow an economy. The Taliban must decide if they are going to return to the old ways of doing things and return to a cash economy, or whether they want to continue to enjoy the benefits of a modern banking economy. It remains uncertain what direction the country is going to go.

The Taliban follow a strict form of Sharia law. They enforce this law by using violence against their own people. The Taliban were in power 20 years ago. That was a short enough time where people remember what it was like. Girls are not allowed to go to school and women are not allowed to work. If a woman went out in public, they would be required to wear a burqa and be accompanied by a male relative. If women broke the rules, they were whipped and executed. Another harsh rule is that all television and music is banned. The Taliban has already executed one musician and destroyed several stores selling art in the capital city of Kabul.

The return of Sharia law also poses logistical problems for the banks. 20% of bank staff are women, who are not returning to work because they are afraid to leave their homes. The banks are faced with dealing with the cash crisis while missing 20% of their staff.

The practical problem is that right now, in Afghanistan, people have no money. This is a population where nearly half of households already lived in poverty. The cost for food has skyrocketed. Imagine yourself in this situation. You just lost your job. There are no other jobs where you can work. If you had money in the bank, you cannot get it out. How are you going to feed your family? People have been trying to sell anything they own on the street so they can afford food to eat.

If you live in the United States, you have never lived through a banking crisis. You do not know what it is like to have a run on the bank. You do not have to live through the fear of waking up one morning and not being able to withdraw the funds in your bank account. So if you are watching this YouTube video from your comfortable living room in the United States, I hope you realize how lucky you are. I see so many people complain about the US, and criticize the Federal Reserve. People say we should throw away the US dollar and replace it with BitCoin. You need to realize how important a stable dollar is. You are so lucky to have people in the US government working every day to make sure you have a stable dollar and a stable banking system. You also need to realize that not everyone in the world has that privilege, and it can all be taken away so fast. I hope this video gives you some perspective on what is happening in Afghanistan, but also the importance of a stable banking system. Because what is happening right now in Afghanistan is what it looks like when your banking system is taken away.

This is a difficult crisis, and you can only hope for the best outcome for the Afghan people in this situation. Thank you for watching.

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Neither Zach De Gregorio or Wolves and Finance shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.

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