This week, a New York court ruled against the potential seizure of $3.5 billion of Afghanistan’s foreign currency reserves in a lawsuit filed on behalf of some victims of 9/11. The plaintiffs had sought the money in order to satisfy a default judgment in an earlier case they had filed against the Taliban, who currently rule Afghanistan.
The decision in this case is a victory for the Afghan people; as part of the foreign reserves of Da Afghanistan Bank (the Afghan central bank, also known as DAB), the money is ultimately the property of their nation, not any one group. But it is by no measure clear that the funds will reach Afghans anytime soon, as the lawsuit will work its way through the court system of appeals. Questions remain, moreover, around how to utilise the funds when there isn't a recognised government in place in Afghanistan – not to mention the ongoing abysmal rollback in women’s basic rights in the country, including rights to education and work.
When we travelled to Afghanistan last year, we witnessed the suffering of ordinary Afghan women, men and children, and embarked on a journey to help them recover from this man-made economic catastrophe. Afghans are in a dire situation. The UN estimates that over 97 per cent of them have fallen below the poverty line, and two out of three people in a nation of 43 million need humanitarian aid. Therefore, it is more important than ever to maintain attention to their plight, sustain aid and to work to return their public and private funds as quickly as possible.
But humanitarian aid, even if it somehow reached the level of $4.6 billion requested by the UN, cannot alone compensate for a decimated economy, especially one that has had the liquidity sucked out of its banks and financial system.
Our organisation, Unfreeze Afghanistan, briefed the court as amici curiae on behalf of the Afghan people. In our amicus brief, we argued that the total sum of DAB’s reserves held in the US, which amounts to $7 billion, including the half sought in the lawsuit, belongs to the Afghan people and not the Taliban, and are therefore entitled to immunity from seizure under the US’s Foreign Sovereign Immunities Act. We were glad to see the court rule in line with our recommendation. The judge agreed that the courts lacked legal jurisdiction, and that awarding the funds to 9/11 families would be unconstitutional.
The irony is that Afghanistan kept its money overseas, including in US banks like the Federal Reserve Bank of New York, for safe keeping, as many countries do. In 1939, under Prime Minister Mohammed Hashim Khan, Afghanistan sent its first shipment of gold to the Fed and continued to see it as the safe haven that it is today because international law, and US practice, has long provided immunity to central bank assets. However, in the court case, the plaintiffs attempted to attach the assets of Afghanistan to their claim against the Taliban for the group’s role in the 9/11 attacks. They argued that the group’s takeover of the country meant that the central bank assets amounted to Taliban assets, even though the US government does not recognise the Taliban as the government of Afghanistan.
Even the Taliban have stated the reserves do not belong to them, and as such would not be used for any expenditures, such as paying the salaries of fighters. While this $3.5bn may be tied up in the appeals process for years, and its fate could even end up in the Supreme Court, there is another pot of $3.5bn which has been moved out of the US to The Afghan Fund, a Swiss-based entity created by the US to enable the funds to be used for the benefit of the Afghan people.
The US says the Afghan Fund could be used to pay for things such as Afghanistan’s commitments to international financial institutions or even electricity bills and that the vast majority may one day go to an Afghan central bank. The Taliban have rejected the very premise of that fund as illegal.
While various proposals have been made for the use of these funds ranging from humanitarian needs to funding an opposition group, prominent NGOs, such as the Norwegian Refugee Council and International Rescue Committee, have come out against using the funds for humanitarian needs, or any purpose other than that for which they are intended, which is to back the liquidity and currency of the country. It was an interesting case in which the NGO community and the Taliban were in agreement about the purpose of the funds.
Seventy economists, including Joseph Stiglitz, wrote a letter to the Biden administration urging it to allow Afghanistan’s central bank access to these reserves. Dr Shah Mehrabi, the head of DAB’s audit committee, argued the funds should be released in a phased manner under tight conditions and monitoring, beginning with a test auction of currency, as is normal practice for DAB. DAB continues to auction off US dollars, which helps to maintain the strength of the Afghani even amid rampant food price inflation.
Recently, with the support of the US, DAB received shipments of newly printed Afghani banknotes that will replace old bills. It helped to mitigate another related disaster of Afghani notes falling apart and being rejected in food markets. It also shows that co-operation between the US and Afghanistan is both necessary and possible on technical issues.
International aid money, shipped in the form of physical dollars, helps to stabilise the currency and the economy, albeit at a lower level than before, given the 30 per cent contraction of the economy seen after the Taliban’s takeover. But aid money is a temporary bandage for a much bigger set of issues.
Further, as a new report by Crisis Group states, donors are frustrated. The report’s authors urge continued aid rather than kneejerk cuts or punishments.
Afghans need money in their hands in order to survive. Perhaps an even bigger priority is the savings accounts of citizens, NGOs and companies, which were kept in private banks and also became frozen in overseas banks. These savings are estimated to be worth anywhere from $540mn to $900mn. Afghans, who participated in the modern exercise of banking with the encouragement and support of the international community, should not face collective punishment.
On the issue of recapitalising DAB, whether the funds remain largely dormant until political conditions change, or if it is possible to effectively conduct monetary policy from afar, will be decided in the near future. But doing nothing due to differences with Kabul will not resolve these very real problems Afghans face.
Any thaw of relations between the US and Afghanistan’s new rulers will be sure to raise more concerns about Afghan livelihoods and how to achieve stability if an entire population is at extreme levels of desperation. Nonetheless, while empowering the Taliban regime is a concern, starving Afghan women and men is not empowering them, and does not achieve any human rights goals. That is why it is imperative to continue working to protect Afghanistan’s reserves from unjust seizure in the courts, but to also encourage the difficult dialogue that is needed in order to use the reserves for the purpose for which they were intended: to shore up the Afghan people’s economy.
