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Afghanistan’s Central Bank: A Legacy of State Control
Kabul, Afghanistan - In the aftermath of the Taliban regime’s fall in 2001, Da Afghanistan Bank (DAB), the central bank of Afghanistan, was left in a state of disarray. The institution, once responsible for managing the country’s financial system, had been reduced to a mere shadow of its former self.
Ownership Structure
A significant portion of DAB’s shares were held by domestic shareholders, with 60% of the bank’s shares owned by 203 individuals and companies within Afghanistan. Foreign investors held the remaining 40%. However, this ownership structure was dramatically altered in the 1970s when the state took an interest in both financial institutions.
Nationalization
In 1974, the Daud government nationalized PTB, purchasing all shares from original shareholders at a discount of 30% to face value. Government organizations, including the Ministry of Finance and Da Afghanistan Bank (DAB), assumed ownership of PTB’s equity. This move did not significantly impact the bank’s operations, with controls and procedures remaining intact.
Shareholding Structure
Prior to nationalization, private individuals and companies owned at least 49% of the Mortgage and Construction Bank. Unfortunately, most records were destroyed during the civil war between 1992 and 1996, making it impossible to identify the original shareholders.
Following nationalization, the shareholding was divided among DAB (40%), the Afghan Chamber of Commerce (30%), Ministry of Finance (20%), and BMA (10%). The government also established two development banks - Industrial Development Bank (IDBA) in 1973 and Export Promotion Bank in 1975 - in addition to the Agricultural and Development Bank, which was founded in 1954.
Current State
Today, the Ministry of Finance and DAB hold equity stakes in all financial institutions, with minor public shareholdings by others. The central bank’s role is crucial in ensuring the stability of Afghanistan’s economy, but its own internal problems have hindered its ability to fulfill this responsibility.
Challenges
A report has revealed that when the Taliban regime fell in 2001, DAB was operating in a legal vacuum and unable to provide basic financial services. Staffed with unskilled employees, the institution lacked technological resources to undertake conventional central banking functions.
The bank’s problems can be categorized into five main areas:
- The legal and regulatory framework
- Monetary policy framework
- Banking supervision structure
- Commercial banking activities and national payments system
- Operational capacity
Conclusion
Afghanistan’s central bank has a long history of state control, dating back to the 1970s. While this move may have been intended to stabilize the financial system, it ultimately led to a lack of transparency and accountability. The institution’s current challenges highlight the need for reforms and modernization to ensure its effective functioning in supporting Afghanistan’s economy.