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Afghan Banks Are Flush With Disposable Cash

Officials have taken to shredding and burning outdated bank notes, but the piles still grow.

November 10, 2002|David Zucchino | Times Staff Writer

KABUL, Afghanistan — Last month, Afghanistan's government began circulating new currency as the first step toward overhauling the country's primitive monetary system.

This month, the government is encountering a problem: What to do with hundreds of millions of old bank notes dating to the 1930s?

At first, the solution was to shred them. But as thousands of Afghans traveled to Kabul, the capital, with old notes collected from mattresses and breadboxes, the Central Bank's 13 shredding machines couldn't keep up with the tidal wave of bills.

Now the notes are being burned in five brick ovens in a muddy parking lot behind the Finance Ministry. But even as two new ovens are being built and workers madly heave thick wads of currency into roaring bonfires day after day, the notes keep coming faster than they can be burned.

"You could say we have a backlog," said Anwar-ul-Haq Ahady, the governor of the Central Bank, his finely coiffed hair and herringbone suit flecked with gray ash as he supervised the burning.

All around Ahady, 6-inch-thick bundles of blue and red bank notes were stacked like bricks in several neat piles 15 feet long and 2 feet high. As workers hurled the bundles two at a time into the ovens, two trucks stood waiting, stuffed to capacity with bricks of cash by the thousands.

The government has printed 28 billion new afghanis to replace the old notes, which remain valid until at least Dec. 4. Three zeros have been lopped from the old bills to reduce the number of notes required for day-to-day transactions. For example, the old 10,000-afghani notes -- about 20 cents at the current exchange rate -- are being replaced by 10-afghani notes, with the new currency trading at 50 afghanis to the dollar.

The new currency, like the old, will float with the market and be backed by Afghanistan's gold and hard-currency reserves.

With the old currency, it takes a grocery bag full of notes to buy a kebab lunch. U.S. dollars and Pakistani rupees are used for major purchases. In a nation without much of a formal banking system and with a cash-only economy, credit cards are not accepted and checks cannot be redeemed.

The new currency, introduced Oct. 7, is intended to be the building block for a more supple and modern financial system. But the way the overburdened and underfinanced government is managing the transition speaks volumes about the state of affairs here. If the haphazard swapping and burning of bank notes are any indication, the country's hopes of entering the 21st century world economy may not be realized any time soon.

People panicked, for instance, when the government asked citizens to exchange largest bills first to speed the process. That only stoked fears that smaller bills would not be accepted, so people swarmed to government banks with millions of old notes in small denominations: 1,000 and 5,000 afghanis.

"We've had some logistical problems," Ahady said, still struggling to find a way to smoothly exchange new bills for an estimated 13 trillion old afghanis that must be destroyed.

Inside Kabul's Pashtani Tejarity bank last week, the corridors were lined with bedraggled men who said they had waited as long as three days to reach the tellers' windows. They sat on the floor, surrounded by burlap sacks and plastic shopping bags stuffed with wrinkled bank notes that they counted by hand.

"Some of the people are quite angry at having to wait so long, but everyone will get their money, of this I am sure," said assistant bank director Daoud Bedar, dressed in a coat and tie and besieged by bearded men in turbans and ragged tunics.

Shir Mohammed, a stout farmer of 40, had brought his life savings -- 120 million old afghanis, worth about $2,400 -- in four huge grain bags. He had taken an eight-hour taxi ride from Kapisa province. Wary of bandits, he had brought along his cousin as a bodyguard.

Mohammed was eager to unburden himself of his load. "I'll trade this for new bills, which I can hide in my coat and no one will know I have so much money," he said.

There are 47 Central Bank locations nationwide for people to trade in their old currency. But by custom and tradition, many assume that only Kabul can truly provide for their needs. So half the old money exchanged so far has come through Kabul, Ahady said, overwhelming its banks.

The proof lay in the Pashtani Tejarity bank basement, where shredded notes were piled in mounds the size of haystacks, spilling out doorways and into the subterranean passageways. Ghulam Nabi mounted a courageous but hopeless assault against the tide, trying to stuff the confetti into plastic bags. The bank was donating the shredded notes to the poor to burn for heat and cooking; on the streets, donkeys could be seen hauling the bags homeward.

"On our best day, we shredded 12 billion afghanis," Nabi said, his hair and clothes festooned with shredded cash that fell softly like snow. "But the shredding machine couldn't handle the demand, so we gave up. Now we are stuck with all this shredded money."

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