ISLAMABAD — In the span of a few weeks, the Afghan currency has dropped several points against the dollar. Government officials and money exchangers in Kabul say that Iranian businessmen, hungry for foreign exchange in the face of international sanctions, are buying up dollars from the Afghan economy and driving the Afghani down.
Kabul's main currency market is located on the streets and walkways of a open-air bazaar, with dozens of dealers sitting in front of piles of cash from different countries.
Currency rates are set by the daily supply and demand. Dollars come and go quickly here.
The head of Afghan's Exchange, Haji Najeeb Ullah Akhtary, says dollars are moving too quickly, driving the value of the Afghani down.
Much of the pressure, he says, comes from neighboring Iran, where international sanctions and a banking embargo are aimed at pressuring the country to comply with inspections of its suspected nuclear weapons program.
He says the sanctions with Iran are affecting us. He says dealers bring Iranian currency here because they have no way of exchanging it in their country.
"The sanctions with Iran are affecting us," he says. "We have a long border with Iran, and dealers are bringing Iranian currency here, as they have no way of purchasing [foreign exchange] money over there."
U.S. Treasury officials have urged Afghan traders not to process dollar exchanges for Iran. The governor of Afghanistan's Central Bank, Noorullah Delawari says despite those restrictions, the illegal trade in dollars is continuing.
"Because of these external pressures or demand for foreign currency, we see a drain on foreign currency from our market," said Delawari. "More than the $20,000 limit is being smuggled outside. We are working with regional governors or region provinces to stop that, and this month alone we had over five situations where bad people were caught smuggling money out of the country in Herat province alone."
Herat lies on Afghanistan's western border with Iran.
Trade between Iran and Afghanistan is estimated at around $2 billion per year, but the vast majority of that consists of Iranian exports. Iranian ports also provide a key trade link for land-locked Afghanistan. Afghanistan's other main alternative is through Pakistani ports, but contentious relations between the two countries mean that Kabul wants to keep its options open.
Deputy Trade Minister Muzamel Shinwari says sanctions that bar Afghan banks from working with the Iranian banking sector are having a negative impact on Afghanistan's overall economy. Foreign firms that are caught doing business with Iranian companies can themselves be hit with sanctions.
Those restrictions are particularly difficult for Afghanistan, when it comes to fuel imports.
Afghan officials say they mainly import fuel from Turkmenistan, Iraq and Iran. Officials say because of international sanctions, Iranian fuel is cheap, encouraging smuggling.
But Shinwari worries that if sanctions against Iran are tightened, and Afghan businesses are punished, it could further damage the country's fragile economy.
"Now when the fuel is coming under the sanctions, it is creating a bigger problem for us, and we are negotiating that with the United States government on how to better sort that problem, as we don't have the domestic production of fuel," said Shinwari. "And if we stop bringing it from Iran, it will create an economic crisis in the country, which will lead to the political crisis, which will lead to unrest in the region."
With Kabul already bracing for the exit of international forces in 2014, the continuing sanctions on Iran are likely to add to the struggles of Afghanistan's fragile economy.