AFN - Afghan Afghani

The history of Afghan Afghani

Afghan Afghani was first introduced in 1923, and throughout the currency’s history, the Afghanistan's complex political and economic journey over the past century is reflected. The significant changes of Afghan Afghani can be divided into two phases as follows.

The first Afghani (1923 – 2002)

The original Afghani’s first appeared in 1923 under the reign of King Amanullah Khan with ISO 4217 code of AFA. Afghan Afghani came to replace the Afghan rupee (which had been used since 1891) as part of the plan to modernize Afghanistan's currency system, hence stabilizing the economy and establishing a national identity. 

As a result of political unrest and interstate disputes, Afghanistan experienced significant upheaval which led to severe economic instability and hyperinflation. As a result, the exchange rate to US dollar was at Afs. 73,000 per US$1 in September 2001 with around seven different versions of the currency in circulation.

The second Afghani (2002 – present)

As a new government under Hamid Karzai came to office in December 2001, the Afghan Afghani was redenominated with a new ISO 4217 code of AFN in 2002. This redesign was to restore confidence in the currency and stabilize the economy. The new Afghani featured various security measures and modern designs to prevent counterfeiting, including watermarks, security threads, holograms, etc.

Currently, Afghanistan has banned all foreign currencies in an effort to promote the use of the Afghan Afghani as the primary currency for domestic transactions. This is also aimed at bolstering the value of the AFN.

Statistics for the third quarter of 2023 indicate that the Afghan Afghani has become the best-performing currency in the world, rising by more than 9% in value compared to the U.S. Dollar.

Types of Afghan Afghani currency

The Afghan Afghani (AFN) has several denominations of currency in circulation, which include both coins and banknotes.

Afghan Afghani coins

Afghan Afghani coins are in circulation with the denominations of Af. 1, Afs. 2 and Afs. 5. These coins are made of metal and have distinctive designs that reflect the country's heritage.

The minted coins were officially introduced in 1952, featuring aluminum 25 pul and nickel-plated steel 50 pul. In 1958, aluminum Afs. 2 and Afs. 5 were introduced. In 1961, nickel-plated steel Afs. 1, Afs. 2, and Afs. 5 were released. Officially, as of April 11, 2005, minted coins have been introduced with denominations of Afs. 1, Afs. 2, and Afs. 5.

Afghan Afghani banknotes

There are some significant points in which the denominations of Afghan Afghani banknotes were changed as follows:

• Between 1925 and 1928, Treasury notes were launched in denominations of Afs. 5, Afs. 10, and Afs. 50. 

• In 1936, additional notes of Afs. 2, Afs. 20, and Afs. 100 were introduced. 

• In 1939, the Bank of Afghanistan (Da Afghanistan Bank) took over the production of paper money, issuing notes in denominations of Afs. 2, Afs. 5, Afs. 10, Afs. 20, Afs. 50, Afs. 100, Afs. 500, and Afs. 1,000. 

• In 1958, the Afs. 2 and Afs. 5 notes were replaced by coins.

• In 1993, new notes of Afs. 5,000 and Afs. 10,000 were introduced.

Factors Influencing the Exchange Rate of the AFN — Afghan Afghani

The Afghan Afghani is essential for pricing and settling transactions in both domestic and international markets, serving purposes such as trade and accumulation as a reserve currency. The factors impacting on the exchange rate of Afghan Afghani AFN include:

• Political landscape: Political instability and ongoing conflicts can lead to decreased investor confidence. When investors perceive a high level of risk, they may withdraw their investments or refrain from investing in the country. This lack of foreign investment can put downward pressure on the AFN.

• Economic climate: Afghanistan has a weak economy, primarily dependent on foreign aid, and the revenues from exports also affect the value of the AFN.

• Supply and Demand for Foreign Currency: Afghanistan relies heavily on imports and has been facing a continuous trade balance deficit for many years. This deficit results in a considerable outflow of foreign currencies from the country, consequently leading to the depreciation of the Afghani exchange rate.

• Inflation rate: High domestic inflation rates also decrease the value of the AFN compared to stronger foreign currencies such as the USD and EUR. Rising living costs reduce the purchasing power of the population and negatively affect the value of the currency.

• Foreign Exchange Reserves: Da Afghanistan Bank (DAB) intervenes in the foreign exchange market by buying and selling foreign currency to stabilize the exchange rate. However, due to limited foreign exchange reserves and other factors, maintaining a stable exchange rate is quite challenging.

• International Aid: Afghanistan heavily relies on international aid to maintain a stable economic budget. Therefore, any reduction in aid would lead to a decrease in foreign currency revenues, putting pressure on the Afghan Afghani.

• Monetary Policy: Decisions regarding interest rates and fiscal and monetary policies by Da Afghanistan Bank (DAB) also directly affect the exchange rate of the Afghan Afghani.

Overall, the ongoing political and economic instability in Afghanistan serves as a significant factor that influences the exchange rate of the Afghan Afghani (AFN). This instability creates a climate of uncertainty, which can lead to unpredictable fluctuations in the currency's value. These fluctuations not only affect short-term transactions but also have long-term implications for the country's economic stability and growth. As a result, the interplay of these various challenges contributes to a complex financial environment where the value of the AFN can be difficult to predict, impacting both local businesses and international trade.