Summary:
- In 2021, Afghanistan went from being a country with almost non-existent crypto usage to ranking 20th out of 154 countries in terms of adoption.
- Crypto’s take-up was meteoric as Afghans faced an economy in tatters as a result of sanctions, a collapsing financial system and major cuts to foreign aid.
- Since the Taliban took control of Afghanistan’s government in August 2021, crypto usage in the country has seesawed, ballooning swiftly in the face of multiple fiat currency challenges before an outright ban in August 2022.
Sanctions and a liquidity crisis
The Taliban’s takeover prompted a financial crisis. The country and its economy had already faced years of conflict and unrest, and was heavily reliant on foreign aid, which was supporting approximately 80% of GDP at this point. Shortly after the government was toppled, the US authorities seized $7.1bn in assets from the Afghan central bank and ended transfers in US dollars. The foreign companies contracted to print the Afghani (currency) ended shipments and, adding further pressure, SWIFT, the system for international financial transactions, suspended its services in Afghanistan.
As a result, the central bank found itself unable to conduct the majority of its functions, including accessing its foreign currency reserves or processing most international transactions. With a parallel situation among local banks, this left Afghans unable to conduct even basic functions like depositing, withdrawing or borrowing money. This created a liquidity crisis, the value of the Afghani fell, banknotes became scarce, and inflation rose; the cost of basic goods nearly doubled in the year to July 2022.
The problems in the banking sector are compounding the country’s wider economic crisis. Aid has been severely curtailed and many Afghans have lost their jobs or are not being paid for the jobs that they do. As the traditional, centralized fiat system has failed, those that have the means started to use crypto. Due to these issues, between August 2021 and August 2022, cryptocurrencies became the only sure means to trade, get paid and receive funds from overseas. By September 2021, the value of crypto received in the country was valued at $150 million a month.
Such a sizeable and swift rise in the use of crypto is testament to the void it is filling in the lives of Afghans. Afghanistan is a challenging environment for tech adoption; just 8.64 million of the country’s almost 40 million inhabitants have access to the Internet, illiteracy rates are high and power supplies unreliable. But this has not stopped the crypto framework from evolving.
Crypto in action
Cryptocurrency transfers from abroad increased by 80% after the Taliban took power. Domestically, crypto activity similarly accelerated. Apps were swiftly developed; among these was HesabPay, which allowed the transfer of funds from one phone to another, securing more than 380,000 users in its first three months in operation. The limited digital courses on offer within the country quickly pivoted to offer their students crypto knowledge and advice. And Forex dealers saw an upswing in business, with new customers converting crypto assets procured locally and from overseas’ relatives overseas into hard currency.
Some of the humanitarian agencies that continue to operate in the country pursued crypto as a means of distributing aid. NGO Code to Inspire, which was founded to teach women computer programing, swapped its focus to simply sending funds directly to its students. Using a stablecoin pegged to the US dollar, Code to Inspire used an app to send $200/month to each student, who then cashed this in for hard currency. Positively, stablecoins offered some protection against the depreciation of the Afghani.
Similarly, Digital Citizen Fund, an NGO founded in 2013 to teach women computer programing and financial literacy, also refocused its work. It provided cryptocurrency training via Zoom, and like Code to Inspire, also sent financial donations to families exchanging cryptocurrency for basic goods and services, as well as to support those wanting to leave the country.
Another crackdown
In August 2022, the Taliban banned all forms of cryptocurrency and its trading on religious grounds, declaring it to be ‘haram’ or forbidden to Muslims because of its speculative nature. Traders were arrested and by November 2022, the value of crypto transactions had dropped dramatically to $80,000 a month.
The Taliban’s actions have decimated the nascent crypto market, fuelling concern about the financial situation of much of the population. The UN warned that during 2022, 97% of Afghans would fall below the poverty line – an increase of 25% – and aid agencies have stepped up their warnings as the year has progressed. Particular concerns are being raised about the growing instance of starvation in a country where food is available but the money to buy it isn’t.
Outlook for Crypto in Afghanistan
Crypto temporarily offered a solution to Afghanistan’s financial sector problems. Should policy change back in its favour, the rapid take-up during 2022 suggests it could quickly take hold again, particularly if problems with banking and the fiat currency continue. This comes with a note of caution. Only a limited section of the population – typically, though not exclusively – young, educated, urban dwellers with access to the requisite technology were able to capitalize on its usage. Education and technological access are vital to crypto’s wider roll out in Afghanistan. This makes the work of NGOs like Digital Citizen Fund and Code to Inspire indispensable, providing users with the knowledge and tools to use crypto safely.
