What is the AFA (Afghanistan Afghani)

AFN is the foreign exchange (FX) symbol for the Afghanistan afghani, the currency for the Islamic Republic of Afghanistan, which floats freely on global markets taking its value from supply and demand. Although a previous afghani currency circulated under a different symbol (AFA), it was replaced in 2002 by a new afghani following the invasion of Afghanistan by the United States and its allies in late 2001.

BREAKING DOWN AFA (Afghanistan Afghani)

AFN replaced the original afghani, which was introduced in 1925 to replace the Afghan rupee. The previous afghani had a fixed exchange rate for many years. The Soviet-Afghan War that began in 1979, various civil wars since then, and control of the country by Islamic fundamentalists groups such as the Taliban severely disrupted the economy. The result was hyperinflation so severe that the afghani exchange rate in 1982 of 50.6 afghanis per U.S. dollar rose to 16,000 afghanis by 1992.

The Afghani exchange rate against the U.S. dollar has weakened over the past several years, partially as a result of inflationary pressures. 

Today, management of the afghani is by Afghanistan’s central bank, Da Afghanistan Bank. Its guidelines for monetary policy do not target a specific currency exchange rate but adopt a framework to “ensure the economic stability in the country” in a way that minimizes the potential for inflation as it continues to grow its economy.

Slow Economic Progress Impacts the Afghani

Because the relative valuation between two currencies that freely float depends on supply and demand, those who choose to accept payments in afghani or even hold assets denominated in the currency closely monitor economic activity for stability and growth.

According to the World Bank, economic growth in Afghanistan has remained sluggish with instability within the country discouraging private investment and dampening consumer demand. The annual growth rate in the nation’s gross domestic product (GDP) is expected to rise from 2.6 percent in 2017 to 3.4 percent in 2018.

World Bank data forecasts that GDP growth rate is dropping to 3.1 percent in 2019 and 2020. Also, although gross national income per capita (measured in U.S. dollars) more than tripled from 2004 to 2013, that level dropped by about 15 percent by 2016.

Furthermore, while the annual Inflation rate in Afghanistan had risen to 10.6 percent as recently as 2011 and had dropped to 0.6 percent in 2014, inflation has been rising again, to a rate of 2.4 percent in 2015 and 5.1 percent in 2016.