Central bank in Kabul squandered its dollar holdings

The Afghan central bank almost completely cut its dollar holdings before the fall of Kabul. The dramatic cash shortage in Afghanistan began several weeks before the radical Islamic Taliban took the capital, according to a secret document prepared for donors by senior officials at the World Bank and the International Monetary Fund. "The biggest problem is the mismanagement of the central bank prior to the Taliban takeover." The foreign exchange reserves in the vaults of the central bank were used up, the central bank could therefore no longer meet cash requests, it said in the document. There has been an extreme lack of funds in Afghanistan since the Taliban came to power in mid-August. Long lines of people regularly form in front of bank branches. Many government employees have not been paid for months. The prices of groceries and other everyday products are skyrocketing. The country is headed for famine. Afghanistan's economy is dependent on dollar reserves. Under the previous administration, the central bank received about $ 249 million, delivered every three months in boxes of $ 100 tied bills, three people familiar with the matter said. The money was kept in the vaults of the central bank and the presidential palace. These deliveries have now dried up. The roughly nine billion dollars that Afghanistan has parked with banks abroad has been frozen. According to the document, the central bank auctioned around $ 1.5 billion to local foreign exchange dealers between June 1 and August 15, which was "remarkably high". Shah Mehrabi of the Afghan Central Bank claimed that the amount of currency actually sold was only about half that. He also defended the central bank's actions. They held the auction in order to avoid a depreciation of their own currency and a run on Afghanis. The report also criticized the government for bringing cash reserves to branches in the province. Around $ 202 million were stored there at the end of 2020, around fifteen times as much as a year earlier. The money was not returned to the central bank when the Taliban gradually conquered the country. Some of the money in the provincial branches is now considered lost. The former central bank governor, who left the country the day after the fall of Kabul, did not respond to emails and other messages. He wrote on Twitter in the past few weeks that he had done his best to cope with the situation. The freezing of balances at central banks abroad is responsible for the lack of money in his country.