Afghans turn to crypto in light of Western sanctions
A trend is emerging that citizens of countries subject to sanctions in response to regional conflicts are turning to cryptocurrencies to hedge their risk and protect their assets from currency risk at home. Earlier in February of this year, Russian citizens flocked to cryptocurrencies to protect themselves against increased volatility of the Rouble in light of Western-led sanctions against Russia for the invasion of Ukraine.
In 2021, the Taliban responded the the US military withdrawal from Afghanistan, taking Kabul in August. Soon after, crypto markets and use of various cryptocurrencies rose sharply. According to Chainalysis - a leading cryptocurrency and blockchain data analyst firm - Afghanistan was ranked 20th out of 154 countries by reference to crypto adoption.
Just a year before, Chainalysis evaluated Afghanistan's crypto adoption to be so minimal as to entirely exclude it from it's ranking system. The US seized $7.1 billion worth of assets from the Afghan central bank and ended transfers of US currency following their troop withdrawal. Just like with Russia last month, the global financial transaction framework SWIFT suspended all services in Afghanistan to banks located there.
Afghan commercial banks could not lend money, and customers were unable to withdraw funds from their own accounts. This, coupled with the fact that 80% of Afghanistan GDP came from foreign aid, left the country's economy on the verge of collapse.
The founder of HesabPay - a platform allowing Afghan users to transfer money using crypto - Sanzar Kakar, said:
We're using crypto to try to solve this problem, that 22.8 million Afghans are marching toward starvation, including one million children that might starve to death this winter...
Stablecoins are also gaining traction among Afghan users, with many pegged to the US dollar - avoiding the volatility ordinarily associated with crypto.
This humanitarian trend is not too dissimilar from failed states using another country's money as a reserve currency, and shows that digital currency may just be able to help achieve it's often touted goal of helping those in need.