Foreign Relations & International Law

Establishing a Humanitarian Financial Corridor for Afghanistan

Alex Zerden
Monday, November 15, 2021, 9:17 AM

Responsibly privatizing Afghan central bank functions could help alleviate a cascading economic and humanitarian catastrophe.

Mountains in Afghanistan. (Reinis Melioranskis,; CC BY-NC 2.0,

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The humanitarian and economic situation in Afghanistan continues to spiral downward as the harsh winter arrives. A humanitarian financial corridor must be established to bring assistance to the Afghan people and stabilize an Afghan economy that is currently in freefall. After the Taliban’s takeover in August, donors suspended billions of dollars in assistance that had propped up 75 percent of the Afghan government’s budget and accounted for 40 percent of annual gross domestic product. The current financial system suffers from acute strains caused by the Taliban’s takeover, such as currency depreciation, rampant inflation, and a shortage of both local currency, the Afghani, and U.S. dollar (USD) banknotes upon which the dollarized economy relies. The international community, led by the United States, must take further action to help the Afghan people without rewarding the Taliban.

Additionally, despite well-meaning public calls to release $9 billion in frozen foreign exchange reserves, the Taliban does not deserve to receive these funds at present. Unfreezing these assets (or allowing access to International Monetary Fund resources), in the absence of other institutional choices, would not solve the problem. Recent pleas by the international humanitarian and development community to address the crisis have identified the need for a financial corridor as a means to getting assistance to the Afghan people without engaging the Taliban. However, no detailed plan exists to explain what the corridor might look like. Such a plan should remain sanctions compliant and work within the new policy framework under the Treasury Department’s October 2021 sanctions review. Although it might be an extraordinary measure, one step in bringing this corridor to Afghanistan would include privatizing a key function of the Afghan central bank, albeit with appropriate controls to avoid Taliban interference or enrichment.

Current Humanitarian Assistance Efforts Are Insufficient, Unsustainable

Policymakers, particularly in the United States, have struck a delicate balance trying to support humanitarian assistance for the Afghan people while maintaining stringent prohibitions, including economic sanctions, against the Taliban. To facilitate the provision of essential financial services into Afghanistan, the Treasury Department will likely need to provide additional policy guidance. The critical, but limited, humanitarian assistance general licenses for sanctions issued on Sept. 24 represent a necessary but not sufficient public signal. These licenses permit certain humanitarian-related transactions for mostly nongovernmental organizations to provide basic needs. Because of its more narrow focus on humanitarian assistance, U.S. policy must address the requirements of legitimate private-sector businesses—such as importers who facilitate critical, licit trade that is not covered by the general licenses—in order to stave off a wider economic catastrophe and return some semblance of normalcy to the Afghan financial system. Proportionality is key to assisting the tens of millions of vulnerable Afghans while still appropriately denying financial services to the Taliban.

Once policymakers agree on a framework, the priority must shift to operationalize this policy guidance into practical mechanisms within the existing Afghan financial system. Complications include the U.S. government’s current decision not to define “the Taliban” for sanctions under Executive Order 13268; the outstanding status of state-owned banks, which compose a quarter of the Afghan banking sector; and the Taliban’s failure to appoint independent and technical leaders of the central bank and Ministry of Finance.

Establishing any humanitarian financial corridor for Afghanistan will be technically difficult and politically fraught. Yet it is necessary. The current humanitarian assistance triages the crisis but appears fundamentally unsustainable as millions more Afghans plunge into poverty and become at risk of starvation.

Taliban Economic and Governance Failures

The corridor requires practitioners to synthesize the mechanics and sources of international donor assistance, a technical understanding of international financial payment rails, the economic and financial peculiarities of Afghanistan, and anti-money laundering and countering the financing of terrorism (AML/CFT) regulations such as “know your customer” (KYC) requirements and ongoing transaction monitoring. Convening these stakeholders and obtaining consensus will be hard. The United States, likely through the Treasury Department, will have to lead this process given the prevalence of existing sanctions against the Taliban, but involvement of diverse government, nongovernment and private-sector entities will be essential.

The international community’s measures to date appear prudent to prevent further abuses by the Taliban. Public reports indicate that Taliban commanders have already mismanaged assistance resources within their control. The Taliban have not demonstrated any indication of financial stewardship or competency. Rather, they have appointed loyalists with no technical expertise, including to run the central bank, and forced low-level bureaucrats to return to work to manage entire ministries. The recent decision to ban the use of any foreign currency demonstrates the Taliban’s economic naivete and incompetence. Providing even a portion of the $9 billion of frozen reserves to the Taliban at this time would legitimize the Taliban while not guaranteeing that they could or would use the funds for the benefit of the Afghan people in need. Any proposal to release funds directly to the Taliban without any concessions or controls presents risk without solving the complex crisis facing Afghanistan at the moment.

However, the international community’s current humanitarian assistance policy is also not sustainable given the 23 million Afghans at risk of acute food insecurity. What could policymakers do to help to ameliorate the looming crisis while denying the Taliban access to international donor funds?

Given the Taliban’s unwillingness to appoint technocrats, its ineptitude, and its lack of trustworthiness, one proposal would be to privatize the Afghan central bank (Da Afghanistan Bank, DAB), or at least key functions to restart licit and crucial economic activity like importing basic goods. As another former Treasury official, Adam Smith, and I have briefly described, this would require a private bank in Afghanistan with no known ties to the Taliban to assume the functions and responsibilities previously held by DAB. Afghanistan International Bank (AIB) is the most likely candidate for this deputization, but another financial institution could serve this purpose. While less common in the modern era, private central banks thrived well into the 20th century and, under these extreme circumstances in Afghanistan, could be a model to serve certain key functions.

Responsibly Privatizing Essential Central Bank Functions

The United States and other international partners such as the United Nations would need to support this policy decision and take affirmative public and private steps to launch this effort. Specifically, the Treasury Department’s Office of Foreign Assets Control (OFAC) would need to provide adequate assurances to the private bank, its correspondent banks, and other stakeholders that it could conduct USD auctions and articulate an acceptable control and risk framework, described below. The United Nations, the European Union (E.U.), and other partners may also need to consider technical modifications to their sanctions regimes.

The private bank should immediately assume DAB’s function to manage the periodic USD banknote and electronic auctions. Before the Taliban took over, DAB controlled this process to maintain liquidity and serve as one of DAB’s few monetary policy levers. In short, Afghan foreign exchange dealers (sarafis, a subset of hawaladars, who when registered are classified as money services providers) and some private banks would buy USD with the local currency, the Afghani. This auction process, which halted in August 2021, provided critical liquidity for the Afghan economy, which is heavily reliant on USD as a means to purchase imports and conduct large transactions in the country such as real estate, and as a store of value at banks. This liquidity has all but dried up since the auctions and reported shipments of USD banknotes ceased in August 2021.

Responsibly revamping the USD auction program would inject much needed liquidity to stave off a complete collapse of the Afghani. While recognizing their AML/CFT compliance shortcomings, the reality is that the sarafis as well as private banks are a critical bridge to getting money from the auction into the wider Afghan economy at this time. The program would vet large sarafis and private banks who provide substantial liquidity, while noncompliant sarafis and private banks would be denied access to the program. A sarafi or bank would be considered noncompliant if it fails to abide by AML/CFT requirements as likely required by the United States and international partners. Noncompliance could result from failing to submit necessary ongoing compliance documentation; ineffectively vetting clients or other counterparties; or knowingly facilitating transactions on behalf of the Taliban, al-Qaeda, the Islamic State in Khorasan province (IS-K) or other identified entities.

Developing a Stakeholder Plan With Appropriate Control Framework

To facilitate this program, several important actions must occur. The private bank should develop an action plan in coordination with U.S. and international partners that explains its current operating posture and commitments to strengthening its risk and control environment with respect to AML/CFT controls (including on OFAC, E.U., and U.N. economic sanctions compliance). An action plan would also likely include an acceptance of more invasive third-party monitoring by internationally recognized auditors and enhanced periodic public and private reporting. The private bank would also need to onboard high-risk sarafis and private banks as clients with attendant heightened KYC checks and ongoing monitoring. These commitments should achieve the policy goal of the private bank meeting or exceeding the control environment in place at DAB before the Taliban’s takeover. Lastly, the Treasury Department and other partners must clearly communicate program expectations at the outset, red lines of program violations that would suspend or terminate the assurances that permit the program, and additional public and private guidance to key stakeholders.

By meeting these requirements, this private central bank model could address many of the challenges that humanitarian organizations and businesses currently face obtaining funds in Afghanistan. At the same time, the model avoids the creation of a complicated external transaction-by-transaction review process or bureaucratic entanglements from an attempt by the United Nations or other bodies to create a financial payment and processing capability from scratch. This model must also be distinguished from Instex, a complex barter system created by European allies to circumvent U.S. economic sanctions for trade with Iran. Importantly, this humanitarian financial corridor would be compliant with U.S. sanctions, importantly because U.S. sanctions target the Taliban, al-Qaeda, and IS-K, and not the jurisdiction of Afghanistan. Instex also took more than a year to launch, whereas Afghanistan requires immediate action.

Before the auction program can resume, a permissible source of physical USD banknotes and electronic money must be identified. Given the U.S. government’s position that blocks access to Afghanistan’s foreign exchange reserves to the Taliban, policymakers must be creative to either allow for the reserves to be allocated for this program without the Taliban gaining access to the funds or identify a separate funding source.

A third-party guarantor, such as Qatar or the United Arab Emirates, could donate funds and take responsibility for the physical movement of funds into Afghanistan. A partner like Qatar can also meaningfully convey to the Taliban that they must accept both the terms of this program as identified by the United States and other partners as well as the severe consequences of interfering in this process. Interference would likely mean suspension or termination of the auction program that allows for these funds to enter Afghanistan.

Denying the Taliban Access to Financial Resources

Permitting even a limited resumption of USD banknotes into Afghanistan will invite criticism, particularly from domestic audiences in the United States who see any U.S. government engagement as, at a minimum, appeasement of the Taliban. While it may look appealing as a cheap and lazy TV chyron (“Biden gives cash to Taliban”), this interpretation would be mistaken and factually incorrect. The proposal seeks to cut out the Taliban by ring-fencing this financial corridor that is built with AML/CFT and economic sanctions compliance as a foundation. It also recognizes the policy imperative to address, proportionately, a grave and expanding humanitarian crisis. Controls would need to prevent the Taliban from coopting the process and must have real and meaningful consequences for Taliban interference, such as suspension or termination of the USD auction. This proposal also furthers the bipartisan goal of denying the Taliban access to the Afghan people’s foreign exchange reserves currently blocked in the United States.

A criticism from the development community would be that privatizing the central bank would undermine institution-building efforts and reverse years of technical assistance efforts. While valid criticism, the policy imperative to address the humanitarian crisis outweighs this worthwhile policy goal. Furthermore, the Taliban bear primary responsibility for undermining the technical expertise and independence of the central bank, necessitating consideration of this extraordinary policy option.

Lastly, this proposal would not solve all the financial problems facing Afghanistan. For instance, the Afghan economy is running low on physical Afghani, and the Taliban need to figure out a way to print more currency. Relying instead on a regional currency such as Pakistani rupees or Iranian tomans is not a reliable solution. More broadly, the Taliban need to develop an economic policy for Afghanistan to export more than heroin and methamphetamines for the world to buy.

In the interim, policymakers must act quickly to address the catastrophic consequences of the Taliban’s violent takeover of Afghanistan and its inability to responsibly manage the Afghan economy. Privatizing key functions of the Afghan central bank such as the USD auction program could allow for the resumption of critical economic activity without having to work through the Taliban. Successful implementation of this specific program to establish a humanitarian financial corridor could also allow for the eventual expansion of other important financial activities such as payroll to government, health care, and other employees with effective controls against Taliban interference.

Alex Zerden is an adjunct senior fellow at the Center for a New American Security (CNAS) and founder of Capitol Peak Strategies. Previously he was the Treasury Department financial attaché at the U.S. Embassy in Kabul, Afghanistan, from 2018 to 2019.

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