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FT Magazine Bitcoin

What we can learn from Afghanistan’s nascent crypto economy

‘Reports suggest some relatively well-off Afghans are turning to crypto to store wealth or move money
overseas’

Gillian Tett YESTERDAY

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Last week, Abdul Wakeel, a self-styled “student of Management

Science, Islamic banking and Finance” in Afghanistan, took to Twitter
to make a striking appeal to the new government in Kabul. “[The]
Taliban should . . . Think about [using] Bitcoin to avoid negative effects
of [American] financial sanctions,” he declared, pointing out that if the
Kabul government started using cryptocurrencies, they could lessen
the impact of being shut out of the dollar-based global banking system.

One of Wakeel’s followers swiftly disagreed. The Taliban “should

definitely consider cryptocurrency, but avoid Bitcoin as it has been very
volatile,” they cautioned. Fair enough. Although I cannot verify the
identities of those exchanging these views, I certainly can confirm that
bitcoin prices have gyrated wildly. 

Leaving aside the details of the current bitcoin price, the fact that
conversations such as these are happening, a few weeks after the fall
of Kabul, is a striking sign of the times. In the past, when countries
have, like Afghanistan, tumbled into chaos and conflict, wealthier
people have either relied on paper money (such as dollar bills) or
precious metals (such as gold) to store their wealth. Sometimes they
turned to chains of Islamic brokers (this is known as hawala) to send
money across borders. 

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Now crypto is creeping in, and while this may still be at a nascent
stage, the development should make us ponder the slippery topic of
trust and “credit” in finance. Even if we live far from Afghanistan, and
even if we love or hate bitcoin.

Taliban should also Think about Bitcoin to avoid negative affects of

financial sanctions. pic.twitter.com/gQzRvGsMKj

— Abdul Wakeel (@awakeel132) September 18, 2021

The issue at stake is nicely laid out in a recent paper by Hyun-Song

Shin, an economics professor at Princeton and chief economist of the
Bank for International Settlements. He argues that the best way for an
economist to look at cryptocurrencies such as bitcoin is to recognise
these tokens only have value because people create a shared
computing ledger of transactions to create a sense of trust. 

Yet the act of creating this ledger with computing power and then
cutting deals on it also creates “frictions” — that is, economic costs. 

Sometimes the costs associated with a system of distributed trust such

as cryptocurrency are much higher than the alternatives. Most notably,
if a trusted institution such as the US Federal Reserve issues money in
an effective and credible way, the costs of using this are relatively low. 

But, as Shin notes, on other occasions the costs of using a

decentralised ledger actually seem less onerous than the risks
associated with dealing with discredited institutions (such as a failing
government) or trying to get your hands on scarce dollar bills (if, say,
they are banned). “To understand [crypto] you have to start by asking
how trustworthy is the central authority — do you have good
governance and an accountable central bank?” says Shin. “If you are in
an unstable or authoritarian system or if you have a failing state, you
are better off with a robust decentralised system, but you pay a cost.”

Many emerging markets fall into this camp. When Chainalysis, a cyber
analytics and diligence firm, recently released its preliminary annual
survey of crypto usage in 154 countries, the top-ranked countries (in
terms of crypto usage weighted for economic activity) were Vietnam,
India, Pakistan, Ukraine, Kenya, Nigeria, Venezuela, Togo and
Argentina. The only developed country on the top 10 list was the US,
ranked number eight.

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As for Afghanistan, when Chainalysis made a previous survey of crypto

last year, Kabul was near the bottom of the ranking for crypto usage.
That may have reflected a modicum of trust in government, or access
to dollar bills, at least among the elite. Another, more likely explanation
is that internet usage has historically been low in Afghanistan, running
at one-seventh the level of Kuwait, say, according to World Bank data. 

Despite this obstacle, the recent ranking showed that Afghanistan had
suddenly leapt to 20th place for crypto usage, relative to the size of its
economy. “Afghanistan has a nascent cryptocurrency economy,” the
company explained in a tweet. But they “rise to the top 20 [because]
we weight the metrics that feed the index by countries’ purchasing
power & internet using population”. To put it another way, Kabul now
suddenly punches above its crypto weight.

Why? Maybe it is because the Taliban are already trying to evade

sanctions. However, media reports from Kabul suggest that some
educated, relatively well-off Afghans are turning to crypto as well,
using it to store wealth, or to move money overseas or receive
remittances from relatives outside Afghanistan.

Some Afghans, in other words, may have engaged in the cost-benefit

calculation Shin describes — and decided crypto makes sense. Indeed,
it probably makes more sense in the Hindu Kush than in Silicon Valley
or all the other western realms where luminaries such as Elon Musk
are creating a buzz with bitcoin memes. It is a striking sign of how the
internet can spread innovation in unlikely ways, with implications that
can be good — and bad.

Follow Gillian on Twitter @gilliantett and email her at

gillian.tett@ft.com.

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