Today, Explained - America has Afghanistan’s money

Episode Date: August 1, 2022

The US froze billions in Afghanistan’s central bank reserves when the Taliban took control. Now it’s wrestling with how to trust the Taliban with the Afghan people’s money. This episode was produced by Victoria Chamberlin with help from Amanda Lewellyn, edited by Matt Collette, fact-checked by Victoria Dominguez and Laura Bullard, engineered by Paul Mounsey, and hosted by Sean Rameswaram. Transcript at vox.com/todayexplained   Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

Today Explained, I'm Sean Ramos from I'm standing outside the Federal Reserve Building in Lower Manhattan. It's an old stone building with steel cages around its tall ground floor windows. There's a U.S. flag hanging above the main door and a couple Federal Reserve police officers standing under it. Right now, $7 billion of Afghanistan's money is being held here. It's the central bank of Afghanistan's reserve funds. And when the Taliban took over last August, the United States froze the money here in the Federal Reserve of New York. But one year later, the Afghan economy is crumbling and the United States is facing more and more calls to release this money. On the show today, we're going to hear about how dire things have become in Afghanistan and why

people think the Taliban needs to be trusted with these billions of dollars of frozen funds. The all-new FanDuel Sportsbook and Casino is bringing you more action than ever. Want more ways to follow your faves? Check out our new player prop tracking with real-time notifications. Or how about more ways to customize your casino page with our new favorite and recently played games tabs? And to top it all off, quick and secure withdrawals. Get more everything with FanDuel Sportsbook and Casino. Gambling problem? Call 1-866-531-2600. Visit connectsontario.ca.

Today explained, Ramaswaram, the second the United States withdrew from Afghanistan, the Taliban took over. It was clear proof that the previous government existed by the grace of the United States Armed Forces. And the story isn't dissimilar for the Afghan economy. It was twist-tied to the United States. Billions of the Afghan central bank's reserves were stashed at the Federal Reserve in New York. And the funds remain here as the Afghan economy is crumbling. What the end of the occupation showed once and for all is that the economy they set up for 20 years was a trap. Like the president couldn't pay his own office without the United States. And there were limits placed on production, on what could be produced, how it

could be produced, where it could be produced, where it could be produced. But the reality of that economy was that it was entirely dependent on the continuation of that occupation. And no one really thought about what happens the day that it ends. The U.S., the EU, the U.N. cut it off from the international financial system. There's something like $9 billion worth of Afghan central bank assets that they refused to return to the central bank of Afghanistan. That includes hundreds of millions that were actually the personal savings of just consumer banking.

That also was a major setback. The lack of physical cash, you know, whether that be because ATMs and such aren't functioning, or whether that be that there's no actual physical new notes being produced. All of this impacted the highest levels of the economy. The banks have largely remained closed when they are open. There are strict limits on how much you can withdraw. And it all points to a much bigger fiscal problem of how Afghanistan is going to pay its way under a Taliban government. Today, we met a woman who had a fairly high position in the government. And, you know, she went from making 52,000 Afghanis to 13,000 in one year. A cousin of mine went from making 52,000 afghanis to 13,000 in one year. A cousin of mine went from making 40-something thousand to 8,000,

to making about $100 in one month to support seven people in his family. In the case of the woman, she's told to stay at home until they can find a place for her, quote-unquote. In the case of the man, you know, he goes to the office, he pays the gas money every month, but what does he really make to support, you know, the seven people in his household? And this is a very common predicament for people in this country. And they're still relatively lucky in that they have some sort of an income. You know, there are so many other people that essentially as soon as the occupation ended, you know, these companies that were reliant on these logistics and these other kinds of contracts, they either ran

away or they went out of business, which means that the people who worked for them also lost their jobs. And you have to remember that each of these people probably have five, six, seven, eight, nine, ten others that they're supporting. Ali Latifi is a journalist based in Kabul. We asked him what life is like today for Afghans on the brink. You know, in the beginning, they were selling their possessions. Some people, you know, may sell or rent out their homes

or their properties that they have. Those that had some level of that. I saw a driver of a foreign media outlet, you know, and he was pushing a cart on the streets collecting cans. People are doing anything that they can to make some level of money. I mean, I've written about people who were selling their kidneys to make money, people who were donating blood to make money. You know, obviously, like, the basic economy is going on. People have to buy food, they have to buy water. But it's much more difficult.

I have no work, no money, no food. I have to sell my daughter, he says. I have no other choice. My father has sold me because we don't have bread, rice and flour. He has sold me to an old man. And then I think there's like a 6.2 magnitude earthquake back in June. It was Afghanistan's deadliest earthquake in two decades. The 6.1 magnitude quake struck this rural region in the middle of the night. Houses made of mud bricks and stone crumbled in an instant. How much worse does that make things?

It makes it much worse because think about it with Hurricane Katrina. Even the U.S. government did an awful job at addressing a natural disaster, right? Yeah. They couldn't get it together enough. And then in Afghanistan, you know, again, when you had billions of dollars of aid during the republic, there was so much corruption that when natural disasters did happen, there was so much corruption and incompetence in the government that it didn't actually go to the people that needed it, the money. And the systems weren't necessarily proper and the correct aid wasn't getting in. And now you have Talibs who have, they know how to blow something up. They don't know how to build it.

And they don't necessarily have the education and the qualifications to run, say, a ministry or a directorate or to know how to handle a proper aid distribution. So that makes it much more difficult in itself. The one good thing that I will say, you know, because I covered that earthquake and I was in the earthquake zones, is that I saw the Afghan people themselves taking the situation into their own hands. So you would see businessmen from Herat in the West coming and giving, you know, hundreds of thousands of Afghanis worth of aid. You know, you would see the owner of one of the biggest malls in Kabul coming and giving aid. You would see groups of young people coming. And the best part about it,

again, like I'm not saying this is good, but like the one good thing about it was that all of these people would come back and say, well, what do these people really need? What's going to get Afghanistan out of this economic crisis? Well, for one, you know, whoever is in charge of Afghanistan going forward needs to come up with a real economic plan that is no longer dependent on aid. That is dependent on production, on services, on exports, on imports, on the things that make an economy. You know, the Taliban has tried to regulate exports much more. They say they're encouraging local business and production as much as they can. But again, these are, you know, smaller sort of steps. These aren't actual plans. This is a great time for the Taliban to prove that they aren't the Islamic Republic, which means to prove that they aren't corrupt and to prove that they won't be just beholden to the outside world for money.

In the sense that, you know, they depend on the outside world to pay their government salaries. Is there any future in Afghanistan that you can envision that doesn't involve the Taliban in control of the government? I mean, I think we need to ask, is bringing another regime going to solve anything? Because if you look at it over the last 50 years, we went from a kingdom to a republic, to communism, to being run by warlords, and then to a civil war, then to being run by the Taliban for the first time, then to an alleged Western democracy, then back to the Taliban. Should we keep pushing for some kind of a regime change, or should we push the Taliban to finally understand, you won the war, you took over, you are the government now. So now you have to make the effort with the people and you have to embrace them and work with them, bring women back into

their government jobs, restart these schools and find ways to fix the economy. Ali kept coming back to this idea when we spoke, and it kind of surprised me. He wasn't totally outraged by Taliban rule. He wasn't calling for a new regime. The Taliban government, to him, was the most viable one at this point, now that the world's focus on Afghanistan has long faded.

I asked him if the Afghan people felt forgotten. Betrayed, forgotten, angry. And obviously the racist rhetoric coming out from Europe and the United States during the beginning of the war in Ukraine also didn't help. People are hiding out in bomb shelters. But this isn't a place, with all due respect, you know, like Iraq or Afghanistan that has seen conflict raging for decades. You know, this is a relatively civilized, relatively European, I have to choose those words carefully too, city where you wouldn't expect that or hope that it's going to happen. Seeing reporters for

some of the biggest media outlets in the world say, well, these aren't third world brown people, you know, which is almost their exact words. That didn't help either, because that made it very clear that what we had been afraid of all along really was how you think. You know, to you, we are just third world brown people that deserve to be refugees and sent off to Rwanda. Ali Latifi, he's a reporter based in Kabul. In a minute, we're going to hear why billions of dollars of Afghanistan's money is sitting in the Federal Reserve in New York.

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Ontario only. Please play responsibly. If you have any questions or concerns about your gambling or someone close to you, please contact Connex ontario at 1-866-531-2600 to speak to an advisor free of charge bet mgm operates pursuant to an operating agreement with i gaming ontario we're back today explained as you heard earlier in the show the afghan economy is in a shambles and all the while billions of dollars of the country's money are sitting in New York's Federal Reserve. The money belongs to Afghanistan's central bank, but the United States froze General to U.S. lawmakers to foreign aid

organizations to Andres Arauz think it's time to give the money back. I'm a senior research fellow at CIPR and I'm a former central banker. Andres was a central banker in Ecuador where he also ran for president in 2021. Since he knows a thing or two about central banks, we asked him to help us understand the conflict around Afghanistan's reserves. So the total amount of money is $7 billion that's in the U.S. and the U.S. Federal Reserve. $9 billion is the total amount of reserves the Central Bank of Afghanistan had elsewhere, including the U.S. So it includes some European countries. Quite a sizable amount for one of the poorest countries in the U.S., so it includes some European countries. Quite a sizable amount for one of the poorest countries in the world.

This money is what's called international reserves of a country, and they are usually held by the country's central bank. Now, it's important to mention that a central bank is not just a bank that belongs to a government. It's a bank of banks. It's where private banks, where commercial banks also keep their money. So if you take that money away from the central bank, you're taking the money away from the commercial banking system, which means that depositors don't have access to their cash. Financial transactions are then impossible. The payment system does not work, and it makes it extremely difficult for people to go about business, whether it's international trade, but also domestic transactions. The people of Afghanistan need their bank accounts to be active. They need

the payment system to work. And so there has been a lot of pressure from civil society, the United Nations, international organizations, pressuring the United States to basically let this money go. A lot of signers from civil society organizations, humanitarian organizations, the Secretary General of the United Nations has said, please, we need this money back in Afghanistan. Freezing temperatures and frozen assets are a little combination for the people of Afghanistan. The function of Afghanistan's central bank must be preserved and assisted and the PES identified for conditional release of Afghan foreign currency reserves.

It is sort of arbitrary that one country can take away the deposits of another country. So now there are some negotiations where Taliban and the U.S. government are on the table deciding what to do about this money. And it's very important that the full amount of money go back to the Central Bank of Afghanistan, not because we want to give this money to the Taliban,

but because we want the financial system to function properly and we want the government institutions, the different ministries, the different institutions of government to work regularly in terms of paying their suppliers, paying salaries to the public servants, and so on. Why do you think it is that the Biden administration is not releasing these funds? Well, there has been a lot of improvisation on behalf of the Biden administration with regards to the Afghan funds. At first they froze because they didn't know what else to do. Then they sat on the table with the Taliban.

And now they're saying, OK, sure, we recognize that we did something illegal, and maybe we can put a few Band-Aids on the situation, and maybe we can release little droplets of these international reserves, you know, certain legal every month. Either you're illegal or you're legal. And when the United States recognizes the fact that these funds do belong to the Afghan people and to this financial system of Afghanistan, they're basically recognizing that what they did was unlawful. And now we have to find a way that restores the functioning of an important institution

in every economy, such as the central bank. Can you imagine that, I don't know, for example, the European central bank all of a sudden didn't have access to its money, or the Mexican central bank, or even the US Federal Reserve all of a sudden stopped working. This is the kind of crisis that's happening in Afghanistan, you know, basically a crisis

where the financial system is not working. People do not have access to their accounts, to their money, and have to rely on either barter or just poverty, you know I don't have purchasing power. But unlike all the other examples you cited, Europe, Mexico, the United States, handing over this money to the Afghan Central Bank, in a way, is also handing over this money to a violent terrorist organization that runs the country. You can design safeguards so that the money doesn't go where it doesn't have to. And this is where the negotiations are. For example, the U.S. is requesting that the Afghan government set a trust fund, that auditors, third party contractors,

and so on, to monitor that the transactions are not going for illicit purposes or for financing or terrorism, according to the global international standards that are already in place. And to, at the same time, restore the functioning of the Afghan economy. Is there fear, though, that the Taliban could find a way to circumvent safeguards? The U.S. and many people, of course, fear that. And that is why the negotiations are ongoing as to what type of additional safeguards can be set in place. For example, the Biden administration is now saying we want a third-party contractor

defined by the United States to be a sort of, you know, a watchdog over the movements of the money in the central bank to make sure that they are not bypassed and so on. So, I mean, this is a possibility. And like I said, it's basically a global standard now. At the same time, there are some people who would prefer the money stay in America and go to victims of 9-11 though, right? That's what the Biden administration decided. U.S. President Joe Biden signed an executive order allowing half of the $7 billion in frozen

assets from Afghanistan's central bank to be set aside in a trust fund slated for humanitarian assistance in the country. To basically set aside half of the amount of the total reserves. The rest, $3.5 billion, is held back while U.S. courts consider claims for financial compensation by families of the 9-11 victims. Some of the victims of 9-11 have come out and said, hey, you know, you can't take this money away from the people of Afghanistan. It's very different when you have an institution that belongs to the financial system and to the overall economy in general than if you directly make that a liability of the Taliban movement itself. Soon after the attacks, my husband and I published a letter called Not in Our Son's Name, calling on the administration not to retaliate

against the people of Afghanistan for the attacks of 9-11. It's beyond my imagination that it should have come to this. Afghans are hungry. Afghans are starving to death. What can the central bank do with this money to help the Afghan people when and if it's released? So when people need to buy food from abroad, they need to send an international wire transfer. And banks have their accounts at the central bank, and the central bank pays for those

imports of food with reserves. But if those reserves are blocked, they can't pay for imported food. That's why it's very important to have those reserves be available for the central bank, so the central bank can make them available to the banking system and people, companies, businesses can go about importing necessary foodstuff, energy and other requirements for day-to-day life of people in Afghanistan. Also, you need this to signal to the global economy that you have enough muscle power in terms of reserves, in terms of a stock of money, so that your currency in Afghanistan went down radically. And of course, that makes the people of Afghanistan lose purchasing power. And of course, it makes their currency basically worthless. Have you ever seen a situation as desperate as the one that Afghanistan currently faces? I will be completely honest. I have never seen something so desperate in terms of the use of central bank reserves, in terms of the threat and, withdrawing cash transfers to a country and so on. I think the situation in Afghanistan is definitely a worst case scenario.

Yeah. So it sounds like it could help this current crisis that Afghanistan's in, but it's not going to necessarily help them kickstart a new economy. What's going to get them there? First, you need to stabilize the situation. This is an ongoing humanitarian crisis. Not only were the funds frozen, but basically all of the humanitarian aid from Western economies

also froze when the Taliban took over. So there are no funds basically entering the Afghan economy. And the money is there. The money is there. It belongs to the Afghan people, not to the Taliban. We have to put in the adequate safeguards so that there can be actual central bank management and policy for Andres Arauz, he's an Ecuadorian politician and economist and a senior research fellow at CIPR. That's the Center for Economic Policy and Research. Earlier in the show, you heard from Ali Latifi, who's a freelance journalist based in Kabul.

Our show today was produced by Victoria Chamberlain, edited by Matthew Collette, fact-checked by Laura Bullard, and engineered by Paul Mounsey. It's Today Explained. Thank you.