September 28, 2023

Taliban fighters guard an entrance gate in front of the Interior Ministry in Kabul on August 17, 2021.

Javed Tanveer | AFP | Getty Images

The Taliban will have a hard time tapping into Afghanistan’s financial assets and managing their new economy after the US freezes the country’s reserves and stops delivering dollars to the country.

A Biden government official told CNBC on Wednesday that the Taliban will not be provided with any Afghan government central bank balances in the United States. This includes all accounts maintained by the Federal Reserve and other US banks.

Separately, an official from the Treasury Department said it was taking steps to prevent the Taliban from gaining access to the International Monetary Fund’s special drawing rights. SDRs are essentially a promissory note that countries can exchange for cash.

SDRs are printed in the fund, distributed to the member countries and can be exchanged for US dollars, which the US is obliged to provide. SDR reserves valued at $ 450 million are due to be released to Afghanistan next week.

Given the important role of the US dollar as the world’s leading currency, this could be a major headache for Taliban leaders.

Economic sanctions imposed by the Treasury and the Federal Reserve can make it significantly more difficult for foreign governments to run an economy without access to dollar clearing, as everything from oil to food imports is largely funded by the dollar.

“The new Afghan government is facing a real challenge in delivering goods and services to the country as the US lockdown prevents US banks from making payments and clearing accounts on their behalf,” wrote Fundstrat policy strategist Tom Block on Wednesday. “Today with the Taliban government insecure, every seller wants to be paid in a widely used currency, and USD is almost always the currency of choice.”

Block previously served as vice chairman of the State Department’s Advisory Committee on International Economic Policy, where he advised the US government on the use of the US dollar and US banks.

“To make matters worse, from an Afghan perspective,” he continued, “the former government, which had a strong strategic relationship with the US, had billions of dollars in its US accounts, and with the blocking order they will lose access to them Money.”

Ajmal Ahmady, Afghanistan’s central bank chief who fled, wrote on Wednesday that he expected the US Treasury to freeze the country’s assets and force the Taliban to control capital. That in turn will boost inflation and devalue the local currency, he said on Twitter.

Ahmady, who left Afghanistan on Sunday when the Taliban took control of the capital Kabul, is the acting head of the Da Afghanistan Bank (DAB).

Afghanistan had about $ 9 billion in reserves last week and the Federal Reserve held $ 7 billion of the country’s assets, Ahmady wrote.

“I think local banks have told their customers that they cannot return their dollars – because DAB did not supply the banks with dollars,” wrote Ahmady. “That’s true. Not because funds were stolen or kept in vaults, but because all dollars are in international accounts that have been frozen.”

He added that he received a call on Friday that “there would be no more USD deliveries (we expected one on Sunday, the day Kabul fell).

The Treasury declined to comment. The Federal Reserve did not immediately respond to CNBC’s request for comment.

The Taliban sped through Afghanistan last week and, after the withdrawal of US troops, took control of one province after another. These efforts, the speed of which surprised the Biden government, culminated in the escape of Afghan President Ashraf Ghani and the fall of Kabul on Sunday.

CNBC policy

Read more about CNBC’s political coverage:

While US President Joe Biden has defended his decision to pull through, the moves to freeze Afghan assets represent some of the last available levers Washington can take to prevent a growing humanitarian crisis.

The US Treasury Department and the Fed have used sanctions in the past to punish foreign governments for a variety of activities.

The Trump administration, for example, helped spin the Iranian economy after promising to sanction any country that bought Tehran’s oil or did business with the Iranian Revolutionary Guard.

Iranian crude oil exports fell by more than 80% thanks to the re-imposed sanctions after the US withdrew from the 2015 nuclear deal by former President Donald Trump.

– CNBC’s Sara Eisen contributed to this report.