CNN.com - Afghanistan banks on new currency
James Holden Staff and wires
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KABUL, Afghanistan -- Afghanistan is banking on the introduction of a new currency to help stabilize its moribund economy and attract desperately-needed foreign investment.
On Monday, it was a case of out with the old afghani, which has been trading at around 46,000 to the U.S. dollar, and in with the new.
Also called the afghani, the new notes are worth 1,000 of the old notes, which will be phased out over the next few weeks.
The launch of the new currency coincided with the anniversary of the October 7, 2001 start of the US-led bombing campaign that brought about the fall of the Taliban regime.
Two planeloads of the notes, printed in Germany and Britain, were due to be distributed to money exchangers for a two-week period beginning Monday, with the general public gaining access shortly afterwards.
The new banknotes, which go into circulation in Kabul from Monday and later in the week in provincial capitals, have a strong symbolic value, President Hamid Karzai said.
"We have signed the decree according to which the process of distribution of the new afghani and collecting of the old ones will begin tomorrow," he told a news briefing in Kabul.
"This is a very important issue for Afghanistan's honour and national and political unity."
No more blocks of cash
Holders of the old currency will be given two months to convert old banknotes into new ones in denominations of 10, 20, 50, 100, 500 and 1,000.
The largest denomination old note -- 10,000 afghanis -- is now worth less than 20 cents, meaning that people have to carry large blocks of currency for even relatively minor transactions.
"We want to remove that inconvenience from economic interaction," Anwarul-Haq Ahadi, governor of the central Afghanistan Bank, told Reuters news agency in an interview.
He said the bank had printed 27 billion new afghanis and would take out of circulation about 15 trillion old ones. Not all the new notes will be put into circulation immediately, with some held as stock.
He said the redenomination represented a huge logistical challenge given Afghanistan's war-shattered infrastructure and would involve spending some $5-6 million to transport the new notes by air and road around the country.
Varied currencies
For two months the government will exchange the dostumi currency -- used in northern Afghanistan and named after the region's powerful warlord Abdul Rashid Dostum -- into new afghanis at half the value of old afghanis.
Ahadi said around 1,800 tonnes of old afghanis would be burned or recycled. He added that the bank had no clear idea how many old afghanis were in circulation after unrestrained printing under Taliban rule and during wars and occupation before it.
"It (the redenomination) is very important because unless we know how much money is in circulation, it would be difficult to conduct meaningful monetary policy," he said.
Ahadi would not speculate on the effect of the exchange of the redomination, but hoped it would at least stay stable.
"The value is not determined solely by economic factors; it is also political and psychological factors. But after a while, maybe after two or three months, if the value of the currency does not appreciate vis-a-vis the dollar, at least it should not depreciate much either.
"We would like exchange rate stability and whenever the central bank can, we will support the afghani."
Security the key
Ahadi said that while most small day-to-day transactions were still carried out in the afghani, people resorted to the Pakistani rupee and the U.S. dollar for most large deals.
"Our objective is that over the next few years most transactions -- the overwhelming proportion of transactions -- will be carried out in the Afghan currency," he said.
Traders handling large blocks of old afghanis in Kabul's dusty open air currency market said they hoped the new afghanis would help the economy, although they said a large number of early conversions of notes from the provinces would probably mean the value would weaken initially.
Ahmad Shaber, 30, said it was vital the government succeeded in its bid to control feuding regional warlords.
"Money is the economy and the economy depends on security and stability. If fighting breaks out then the new money is finished," he said.
Another trader, 45-year-old Khan Agh, said it was difficult to say if the new money would be a success, but added: "We needed to drop some zeros. At least it will be easier to carry!"
Reuters contributed to this report.
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