What the Taliban crackdown means for the future of crypto in Afghanistan

With the rise of the Taliban last August, Afghanistan faced global sanctions that led to many international organizations and money transaction services halting operations in the country. This allowed digital currencies and stablecoins to be widely used, at least for sending or receiving remittances.

However, the Taliban government recently banned cryptocurrencies and arrested 16 local money changers in the northwestern city of Herat in the past week, according to provincial news website ATN-News.

According to the report, the exchanges were initially given a deadline to comply with government regulations, but were eventually shut down after failing to do so. The Afghan government has now asked local people to refrain from using digital assets and has warned them of the risks associated with such activities.

However, people familiar with the matter, who wish to remain anonymous for security reasons, have told Cointelegraph that “no prior announcement or warnings were given.”

“When the Afghanistan Bank (central bank) stated in a letter that digital currency trading has caused many problems and deceives people, therefore they should be closed. We acted and arrested all the money changers involved in the business and closed their shops,” says the head of the counter-crime unit of Herat police, Sayed Shah Sa’adat, to ATN-News.

People familiar with the matter believe there was no crypto-related fraud involved in the government’s “stupid” decision. “We mostly used the Binance crypto exchange and a wallet to trade, send or receive assets,” they added. “Right now we don’t have standard banks or money services, and the Taliban banned our only hope.”

In June, the Taliban-led central bank of Afghanistan banned online currency trading in the country. A spokesman told Bloomberg that the bank views currency trading as both illegal and fraudulent, saying “there is no instruction in Islamic law to authorize it.” After the Taliban regained power in Afghanistan, the local economy worsened as billions of dollars in foreign aid were cut off and their foreign assets were frozen under US sanctions, according to Bloomberg.

Why did the Taliban ban crypto?

According to the ATN-News report, the main reasons for the ban are the volatile nature of cryptocurrencies and assets such as US dollars leaving the country since crypto exchanges are not based in Afghanistan. Another reason noted in the report is that digital currencies are new and “people are not familiar with them.”

The head of the fiat exchangers’ union Ghulam Mohammad Suhrabi also claimed that crypto was being used to deceive people. However, people familiar with the matter do not know of any crypto-related crime or fraud, nor did Suhrabi provide specific data.

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Some believe that the only reason for the ban is the decentralized nature of cryptocurrencies and the underlying blockchain technology. “They banned it because they can’t control it,” a trader with over six years of crypto experience told Cointelegraph, stating:

“The government wants to see, control and manipulate everything in the country. Crypto is volatile, I agree, but anyone using it needs to know that. We also have stablecoins like Tether, USD Coin and many more for people who just want to send or receive money transfers to/from other countries.”

Cointelegraph’s sources further stated that the Taliban have also told traders and crypto-to-fiat exchangers that using cryptocurrency is like “gambling” and calling it “Haram”, meaning forbidden under Islamic law. They added that the government wants people to use local banks to transfer money, while “most of the local money services are limited and do not allow us to withdraw all our money at once.”

“We can only get about 20,000 Afghanis (about $220) per week from the local banks that you have to queue for hours sometimes,” a crypto user who receives money from his brother from Germany told Cointelegraph. “Besides all the difficulties of withdrawing money from banks, another problem is the expensive transaction interest that we are just trying to avoid.”

He added that there are always a bunch of hidden fees when using services like SWIFT, Western Union, MoneyGram and the local Hawala system. The crypto user said transaction rates sometimes go up to 20%.

Risk of crypto in Afghanistan

After Afghanistan was hit by a wave of sanctions that limited the reach of international banking and trade, many were looking for an alternative to getting money from family and friends abroad. The situation gave way to cryptocurrencies, as the local money transfer services were either prohibited or very expensive.

Furthermore, popular payment transfer companies such as PayPal and Venmo are not supported by banks in Afghanistan, limiting the financial services these businesses offer. In addition, it is difficult to open a bank account due to the number of requirements one must meet, such as providing a house deed and work statement.

“We could receive thousands of dollars in crypto assets from our families without worrying about the transaction fees or complexity of [digital] exchange,” the locals said. “Using apps like Binance or something [crypto] wallets are super easy, that we even have some illiterate people who can now easily send or receive cryptocurrencies.”

The Friday Mosque (Jumah Mosque) in Herat, Afghanistan. Source: Koldo Hormaza.

According to Google Trends data, interest in the search terms “Bitcoin”, “crypto” and “cryptocurrency” has increased by more than 100%, especially in Herat, Kandahar, Kabul, Nangarhar and Balkh provinces.

Furthermore, Afghanistan was ranked 20th among 154 countries in “The 2021 Global Crypto Adoption Index” by Chainalysis in 2021. This is a positive indication that the people of Afghanistan are willing to invest and use cryptocurrencies in their daily lives, one person said to Cointelegraph.

“Crypto is the only way I can get paid online because we don’t have access to a service like PayPal,” said one online worker. “I receive my salary in cryptocurrencies and this is how I put food on the table for my family of nine, but I’m really hopeless now.”

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One source added that the Taliban may be trying to create a central bank digital currency (CBDC) and may have plans to use blockchain technology. However, most traders believe that there is no need for a CBDC when cryptocurrencies offer what people need. The Taliban has yet to announce any plans related to the CBDC.

“Just imagine what a frictionless, global digital payment system with appropriate controls on illicit finance could do for people in places like Afghanistan – if relatives abroad could easily send money transfers, or if NGOs could pay their staff halfway around the world with a click button on a smartphone,” said US Deputy Treasury Secretary Wally Adeyemo at Consensus 2022.

Adeyemo pointed out the weakness of local banks in Afghanistan when it comes to providing enough money to “ordinary people”. While the situation in the country is getting worse every day, he believes that “it is crucial that we balance both sides of this well-known digital coin, the risks and the opportunities.”