Running a central bank with the Taliban at the door – with Ajmal Ahmady

Amid the many inches and hours of media coverage of the Taliban’s stunningly swift return to power in Afghanistan, relatively little attention has been paid to the country’s finances. As such it was fascinating to hear from our latest guest on The Value Perspective podcast, Ajmal Ahmady, who – until Kabul fell on 15 August – was acting governor of the country’s central bank, Da Afghanistan Bank (DAB).

Ahmady’s family emigrated from Afghanistan not long after he was born, ultimately settling in the US. After gaining a dual degree in international development and business from Harvard, Ahmady spent eight years in asset management before, in 2003, returning to Afghanistan – first as a senior economic adviser and then as acting minister of industry and commerce. In June 2020, he was appointed to head up the central bank.

Chaotic environment

One of Ahmady’s achievements during his short tenure was to stabilise the country’s currency – and, in light of our underlying theme of decision-making in conditions of uncertainty, this example of ‘making the uncertain certain’ was always going to catch our eye, here on The Value Perspective. How did he manage to filter out what must have been an increasingly chaotic environment to deliver the DAB’s various targets?

“In common with most central banks around the world, the central bank has an inflation-targeting mandate,” Ahmady replies. “That was the key component and so, when you take a look at our reaction function, one of the key drivers of inflation is currency movement – because Afghanistan imports so much, we ran a very large trade deficit.

“So we did not explicitly target the currency rate but we monitored it very closely on a day-to-day basis. And we had a few monetary policy tools we utilised, including foreign exchange auctions and DAB note auctions, in order to ensure our monetary policy targets were met. That is maybe the typical framework a central bank uses and it is the one we utilised.”

International reserves

As conditions began to worsen in Afghanistan, Ahmady was keen not to introduce macroeconomic instability into an environment of already high – and worsening – political and security uncertainty. “At the same time, we had to balance a competing set of objectives,” he adds. “On the one hand, we wanted to reduce currency volatility and, on the other, we had to make sure any action we took did not deplete our international reserves.

“At the end of the day, I think I can justifiably say currency volatility remained low – it did not appreciate by more than 5% – and we were left with more than $9bn [£7bn] in international reserves. By any common reserve metrics, that can be seen as sufficient as it represents approximately 14 months of international reserves or about 50% of GDP, which are quite large figures.

“In sum, then, when you look at the situation of Afghanistan, I would say it was not really a macroeconomic crisis – as you have in Syria and Lebanon and a number of other countries. We were able to maintain that macroeconomic stability but, unfortunately, the political and security conditions continued to deteriorate.” We will look at the endgame of that situation in more detail in Reliable information and Evolving processes.

For further information, please see the following links. Please note that Schroders is not responsible for content on external sites:

1. Highlights of an FT subscriber webinar with Ajmal Ahmady on Afghanistan, 2021-08-26
2. ^ Foreign Affairs (2022-03-30). “Ajmal Ahmady: Why Afghanistan Fell"
3. ^ Financial Times (2021-08-24). “Ajmal Ahmady: Afghanistan faces an economic crisis, as well as a humanitarian one" (actual link: https://www.ft.com/stream/75ed5ed6-883f-402c- b04b-4d1ddd5ab670)
4. ^ “Ajmal Ahmady: The Taliban Can't Print Cash and Other Afghan Business Challenges". com. 2021-09-07
5. ^ Matt Egan. "Former Afghan central banker Ajmal Ahmady describes 'complete chaos' of fleeing the country, with one shoe and no bags". CNN
6. ^ "Afghanistan's central bank governor Ajmal Ahmady tells of his escape as the Taliban closed in on Kabul". Sky News
7. ^ "US left too quickly, says Afghanistan bank governor Ajmal Ahmady". BBC News. 2021- 08-17
8. ^ "GZERO Media with Ajmal Ahmady". GZERO Media
9. ^ "Odd Lots: A Conversation With Ajmal Ahmady, Afghanistan's Former Central Bank Chief on Apple Podcasts". Apple Podcasts
10. ^ "A Conversation With Ajmal Ahmady, Afghanistan's Former Central Bank Chief". com. 2021-08-23
11. ^ Mercatus Macro Musings: Ajmal Ahmady on the Afghan Economy and the Challenges Facing the Nation’s Future. 2021-11-15

12. ^ “Ajmal Ahmady: Afghanistan's economy is in trouble after the Taliban took control". wbur.org
13. ^ "Afghanistan's Money Problem : Planet Money with Ajmal Ahmady". org
14. ^ Nelson, Eshe; Rappeport, Alan (2021-08-18). "U.S. and I.M.F. Apply a Financial Squeeze on the Taliban, with comments by Ajmal Ahmady". The New York Times
15. ^ Wechsler, Josh Lipsky and William F. (2021-08-18). "Opinion | Will the IMF Bankroll the Taliban, with comments by Ajmal Ahmady?". Wall Street Journal
16. ^ Afghan Central Bank Chief Ajmal Ahmady Warns of Economic Crisis Bloomberg
17. ^ Filseth, Trevor (2021-09-15). "Afghanistan Headed for Financial Collapse, Former Bank Chief Ajmal Ahmady Warns". The National Interest
18. ^ Franck, Thomas (2021-08-18). "U.S. won't let Taliban access Afghanistan's financial assets held in America, with comments by Ajmal Ahmady". CNBC
19. ^ Marino, Kate (2021-09-13). "Afghanistan's cash problem is intensifying a humanitarian crisis, with comments by Ajmal Ahmady". Retrieved 2022-04-19.

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