The afghani (sign: Af (plural: Afs) code: AFN; Pashto: افغانۍ; Dari: افغانی) is the currency of the Islamic Republic of Afghanistan, which is issued by the nation's central bank called Da Afghanistan Bank. It is nominally subdivided into 100 puls (پول), although there are no pul coins currently in circulation. In 2020, one U.S. dollar was exchanged for approximately 77 afghanis.
The original afghani (ISO 4217 code: AFA) was introduced in 1925, replacing the Afghan rupee that was used from 1891 and other currencies. In addition to being subdivided into 100 puls, 20 afghanis were equal to one amani. The rate of conversion from the rupee is sometimes quoted as 1 afghani = 1 rupee 6 paisas, based on the silver contents of the last rupee coins and the first afghani coins. The afghani initially contained 9 grams of silver.
Except during World War I Afghanistan's foreign exchange rate has been freely determined by market forces. However, for some periods, a dual exchange rate regime existed in Afghanistan: an official exchange rate which was fixed by the Afghan Central Bank, and a free market exchange rate which was determined by the supply and demand forces in Kabul's money bazaar called Saraye Shahzada. For example, in order to avoid the seasonal fluctuations in the exchange rate, a fixed exchange rate was adopted in 1935 by the Bank-e-Millie (National Bank), which was then responsible for the country's exchange rate system and official reserves. Bank-e Milli agreed to exchange afghani at 4 Afs against 1 Indian rupee in 1935. After the establishment of Da Afghanistan Bank as the Central Bank of Afghanistan, such a preferential official fixed exchange rate continued to be practiced. Although Da Afghanistan Bank tried to keep its official rate close to the Sarai Shahzada exchange rate, the gap between the official and free-market exchange rates widened in the 1980s and during the civil war thereafter.
The afghani traded at 67 Afs to one U.S. dollar in 1973. After the start of a civil war in 1992, the same U.S. dollar bought 16,000 Afs. Banknotes from the period of Zahir Shah's monarchy ceased to be legal tender by 1991. After the creation of a dysfunctional government and the start of the civil war, different warlords and factions, foreign powers and forgers each made their own afghani banknotes to support themselves financially, with no regard to standardization or honoring serial numbers.
In December 1996, shortly after the Taliban took control of Afghanistan's institutions, Ehsanullah Ehsan, the chairman of the Taliban's Central Bank, declared most afghani notes in circulation to be worthless (approximately 100 trillion Afghani) and cancelled the contract with the Russian firm that had been printing the currency since 1992. Ehsan accused the firm of sending new shipments of afghani notes to ousted president Burhanuddin Rabbani in northern Takhar province. The exchange rate at the time of Ehsan's announcement was 21,000 afghanis to one U.S. dollar. It was then devalued to 43,000 afghanis to the dollar. Abdul Rashid Dostum, who controlled a self-declared autonomous region in northern Afghanistan until 1998, also printed his own money for his region.
Following the United States intervention, the currency became highly destabilized. The afghani traded at 73,000 Afs per one U.S. dollar in September 2001, steeply soaring to 23,000 Afs after the fall of the Taliban regime in November 2001, before plunging again to 36,000 Afs in January 2002. Around seven different versions of the currency were in circulation by that time. A former governor said at the time that maybe "trillions" of banknotes are in circulation as a result.
In 2002, the afghani was redenominated, and it received a new ISO 4217 code AFN. No subdivisions were issued. It replaced the previous afghani at two distinct rates: issues of the government of former President Rabbani (de jure 1992-2001) were replaced at a rate of 1,000 to the new afghani, whilst the issues of warlord Dostum (1992–1997 in northern Afghanistan) were replaced at a rate of 2,000 to the new afghani. It was created in an effort to stabilize the economy and stop the rapid inflation. The notes were printed in Germany.
The new currency was announced by President Hamid Karzai on 4 September 2002, and was introduced to the market on October 8, 2002. This monetary reform was well received by the public as it was a sign of security and stability, especially the country's rebuilding effort. People also no longer had to carry many bags of money for ordinary things. It was the first time in many years that a sole currency was under the control of the central bank instead of warlords. Most old banknotes were destroyed by the end of 2002.
Da Afghanistan Bank has adopted a floating exchange rate regime and has let the exchange rate to be determined freely by market forces. The new afghani was valued at 43 afghanis to one U.S. dollar.
After depreciating during the last quarter of 2003/04, the afghani appreciated steadily, gaining 8 percent against the U.S. dollar between March 2004 and July 2004. This appreciation, at a time of increasing inflation, appears to reflect a greater willingness by the population to use the afghani as a medium of exchange and as a store of value. This trend appears to be attributable to the relative stability of the exchange rate since the introduction of the new currency, administrative measures aimed at promoting its use, such as the requirement that shopkeepers must price goods in afghani. Donors are increasingly making payments in afghanis instead of U.S. dollars and this appears to be widely accepted. By 2009, the afghani was valued at 45 afs per one U.S. dollar. In 2019, the afghani reached 75 afs to a U.S. dollar.