Recently the exchange rate of Afghanis to US dollars is increasing, the publisher wants to analyze this and recommend some ways out of it.
Around two months ago the US $ was gaining value against all currencies, which was not a matter of concern for most of the nations like Afghanistan, because almost all currencies lost their value agonist US$. But later on it has been more than a month that Afghanis is losing its value against major currencies.
If a currency loses its value it would be desirable for a nation in terms of economic principles. simply because it increases the exports by making it cheaper for foreigners and it decreases imports by making it expensive for domestic consumers.
The case of Afghanistan is totally different, for two reasons. One, because our exports are just 5% of our imports and second, because unemployment has highly decreased the income of Afghans, not to mention the high poverty rate of above 40%. This prevailing the higher the lower the exchange rate the cheaper are imports and Afghans can dwell a better life.
Because the exports are very insignificant and domestic industry cannot meet domestic demand, the publisher will not consider the side effects of lower exchange rate.
The following points stand as the reasons for depreciation of Afghanis:
1. Withdrawal of foreign forces, as the largest suppliers of US$ in Afghanistan.
2. Significant decrease in the dollar holdings of central bank.
3. Higher insecurity inducing the outflow of US$ by investors abroad.
4. Decreasing trust of people in the Afghan currency inducing them to hold US$.
5. Hoarding US$ by brokers in the money markets.
6. Capital flight by through migration.
All the reasons in place it's the job of the government and the central bank of Afghanistan to control the value of Afghanis in the money market. The following are some suggestions:
1. The government should start issuing bonds in Afghanis. This decrease the pressure of inflated amount of Afghanis in the market. Making Afghanis less available against foreign currencies.
2. The government should encourage domestic production.
3. The government should kick start large project of mine extraction. That will increase exports of raw material thus increasing the inflow of $.
4. Government should either encourage international society to increase their aid to Afghanistan, or the government should borrow $ which is proved a bad option.
However there are some other ways like import substitutions of specifically energy to check the outflow of US$ but it would either be time consuming or insignificant.
Your further comments are welcomed as always!
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