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Central Bank Declares Afghan Currency as Country's Legal Tender - 2003-10-07

Starting Tuesday, Afghanistan is no longer accepting the U.S. dollar and other foreign currencies as legal tender. This new measure is an important sign that, after two decades of war, the Afghan economy is finally beginning to stabilize.

One year ago, a U.S. dollar would buy you anywhere from 75,000 to 95,000 afghanis, the national currency of Afghanistan.

Not that the exchange rate mattered, as in those days, most merchants preferred to transact business in dollars, Pakistani rupees or other foreign notes.

Even the central government took payments for visas and other official fees in U.S. currency.

At that time the afghani's value fluctuated wildly, based on public perception of the country's stability. It also had to compete against three other currencies, issued by warlords running their own semi-autonomous mini-states throughout Afghanistan.

But in the space of a year, the new central bank has managed to stamp out rival currencies and revalue the afghani at its now stable rate of around 48 to the dollar.

Central Bank Governor Anwar ul-Haq Ahady says this new stability has allowed him to make the move, at last, to an all-afghani economy.

"Why we didn't do it earlier [is because] I did want to demonstrate to the people that the currency is stable," he said. "If the currency was unstable, then I think there would have been an economic reason ... for doing transactions in other currencies."

Mr. Ahady says the afghani has not fluctuated by more than one percent against the dollar over the past nine months.

The last time the country had such a stable currency was in the 1980s, during Afghanistan's communist regime. And even then, black market rates often listed foreign money at as much as five times the official value.

Part of the reason behind the new, solid rate is the improvement to the economy as a whole.

Over the past year, Afghanistan has seen huge inflows of foreign aid, along with hordes of relief workers, journalists and some wealthy Afghan expatriates spending their hard currencies in Afghanistan's market place.

This has given the central bank enough foreign exchange reserves to maintain the value of its bank notes.

Ahmed Wali runs a leather-goods shop in Kabul's Shahr-e Nau district, catering to both Afghans and foreigners. He says that since the fall of the Taleban, his sales have risen dramatically.

"After Taleban, business is very good," he said. "I sold in one week, a thousand dollars [worth of goods]."

Although the central bank's decree can take immediate effect in terms of government fees, forcing the private sector to stop accepting foreign money make take some time, as Mr. Ahady acknowledges.

"In the long run, it will work. ... The economic incentive is not there anymore to attract or to use other currencies," he said. "But we will see."

In fact, Mr. Wali, the leather merchant, says the push to have all transactions quoted in afghanis is a positive sign for Afghanistan and its economy.

"I think this is better for Afghanistan government," he said. "This is a good idea. But for our shop, this is also not a problem. I can take afghanis."

But he adds that if foreigners show up asking to pay in dollars or euros, he is happy to accept those as well.