What Is the Afghan Afghani (AFN)?

The Afghan afghani (AFN) is the national currency of the Islamic Republic of Afghanistan. Its ISO 4217 code, AFN, was introduced in 2002 as part of efforts to stabilize the currency and reduce inflation. Prior to this change, it circulated under the symbol AFA.

Key Takeaways

  • The AFN is the national currency of Afghanistan.
  • It is the product of modernizing reforms that took place in 2002.
  • The country has faced hyperinflation throughout its history. However, inflation has decreased in recent years.

Understanding the AFN

Afghanistan has undergone many changes to its currency in recent decades. In 1925, the Afghan rupee was replaced with the original afghani, which was then reformed in 2002. The previous afghani operated under a fixed exchange rate, whereas the AFN operates on a floating exchange rate.

The economy of Afghanistan has endured substantial challenges. The Soviet-Afghan War, which began in 1979, raged for nearly a decade, and the country has been gripped by various civil wars since then. More recently, the country was invaded by the United States in 2001, and the country continues to be occupied by U.S. and allied forces to this day.

Although today the AFN enjoys relatively low rates of inflation, Afghanistan has experienced severe bouts of inflation in the past. Between 1982 and 1992, hyperinflation caused the exchange rate of AFN to U.S. dollars (USD) to rise from 50.60 to 16,000. In more recent times, inflation reached nearly 15% in 2011, and has hovered around 5% per year more recently.

Monetary Reforms

Prior to the reforms put in place in 2002, there were several different versions of the AFN in circulation throughout Afghanistan. Many of these were controlled by local warlords. Therefore, until recently it was difficult to determine the value of the currency of Afghanistan, as the country lacked a universally accepted currency.

Real World Example of the AFN

Today, the AFN is managed by Afghanistan's central bank, "Da Afghanistan Bank." Its monetary policy objective is to minimize the risk of inflation while maintaining the floating exchange rate regime.

In 2002, the central bank introduced bank notes in denominations of one, two, five, 10, 20, 50, 100, 500, and 1,000 AFN. In 2005, the one, two, and five AFN bank notes were replaced with coins. The most recent change occurred in 2014, when the 1,000 AFN bank note was updated with added security features, in order to reduce the risk of counterfeiting.

According to the World Bank, economic growth in Afghanistan has been hampered by persistent political instability within the country. These factors have discouraged private investment and dampened consumer demand

The annual growth rate of Afghanistan's gross domestic product (GDP) has hovered around 2% in recent years, while inflation has fluctuated between a high of 5% and a low of -0.7%. For its part, the AFN has depreciated heavily against the USD since 2002, depreciating from just under 50 AFN per USD to nearly 80 AFN per USD as of Sept. 2019.