MCViewPoint

Opinion from a Libertarian ViewPoint

Da Afghanistan Bank | Mises Institute

Posted by M. C. on August 18, 2021

Da Afghanistan Bank, like the Fed, is also unnecessary. They both perform functions the free market could not only do, but could do better. That a monetary system existed in Afghanistan for over two thousand years and that its central bank has only existed for sixty should be telling of the actual need for a central bank.

https://mises.org/power-market/da-afghanistan-bank

Robert Aro

Did you know Afghanistan has a central bank? Established in 1939, it’s called Da Afghanistan Bank (DAB) and in the near future will likely come under control by the Taliban. Nonetheless, the institution has some history, like the nation of Afghanistan itself, which had a monetary system using coins dating back over two thousand years!

Their policies parallel those of the Federal Reserve.

DAB is run by the Supreme Council. Per the bio of Mr. Ajmal Ahmady, acting governor and acting chairman since 2020:

He has an MBA from Harvard Business School, a Master of Economics and Public Administration from the Harvard Kennedy School of USA. 

 With an impressive pedigree he manages various objectives of DAB, much like the Fed:

The primary objective of Da Afghanistan Bank shall be to achieve and to maintain domestic price stability.

Also like the Fed, DAB uses a variety of anti–free market interventionist policies such as:

Open Market Operations (OMOs) to manage liquidity in the money market. In case of excess liquidity available in the market, DAB mops up this surplus liquidity by using the monetary policy instruments.

Public address statements from DAB sound eerily similar to statements made by Jerome Powell. In this instance, the Afghani bank says:

While current reforms as well as increase in tax may cause an up-take in inflation, this is likely to be transient given excess capacity in the economy and well-anchored inflation expectations.

Transient inflation, one of the tritest and highly unexplainable economic terms of recent memory, has reared its ugly head even in Afghanistan. With inflation expectations expected to be around 5 percent year over year, one can only hope this transient period doesn’t last too long … and then of course one should hope for a little transient deflation to reverse the effects of said transient inflation, otherwise all price increases become permanent.

If there is any consolation, the bank has not ventured into negative interest rates as others have; per the above policy announcement, they increased overnight deposit rates from 3 to 6 percent.

Learning of another, lesser-known central bank’s policy and mandate, and comparing it to that of the Fed, helps to conceptualize some salient points of central banking. Whether it’s the Federal Reserve or Da Afghanistan Bank, whether a Princeton/Georgetown-educated lawyer like Powell or an MBA graduate from Harvard like Ahmady sits at the helm, wherever a central bank exists, there stands an authority assigned to the task of doing both the impossible and the unnecessary.

Impossible by assigning arbitrary goals like “price stability” supported by circumlocution, such as mopping up “surplus liquidity,” these mandates are devoid of elucidation and seldom elaborated upon, beyond high-level talking points. They don’t hold up under the slightest of inquiries, such as how stable prices should be or noting each individual’s varying definition of price stability.

Da Afghanistan Bank, like the Fed, is also unnecessary. They both perform functions the free market could not only do, but could do better. That a monetary system existed in Afghanistan for over two thousand years and that its central bank has only existed for sixty should be telling of the actual need for a central bank.

Strangely enough, prior to today’s publication of this article, Reuters reported that Mr. Ahmady has now fled the country. He said:

It did not have to end this way. I am disgusted by the lack of any planning by Afghan leadership.

With Da Afghanistan Bank under Taliban control, the future of monetary policy looks uncertain. Will they maintain business as usual, using technocrats to employ interventionist techniques to stabilize the Afghan afghani, their local currency? Or will the new rulers look for older, long-forgotten methods such as a gold standard to supplant the dollar as world reserve currency? Maybe not, as that would most certainly lead to another war with America …

Be seeing you

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