$2-3 Million Smuggled Daily From Afghanistan to Iran

EghtesadOnline: Aziz Ahmad is one of the unlikely winners of the standoff between the United States and Iran, turning his modest transport service into an international foreign exchange operation that is providing much-needed dollars to the Iranian economy.

News ID: ۷۸۳۱۴۶

03 July 2018

A driver in the western Afghan city of Herat, he crosses the border regularly, taking passengers in his transit van to Mashhad in Iran and carrying thousands of dollars to a country starved of foreign exchange, reads a Reuters report. Below is the full text:

“Lately it’s been possible to make good money with dollars in Iran,” he said. On each trip, he takes about $5,000-6,000 with him, making around $100 on the exchange rate alone and buying foodstuffs and other products to sell back home.

“Usually, I bring back a few things you can make a profit on here,” Financial Tribune quoted him as saying.

Iran’s rial has lost 40% of its value since US President Donald Trump’s decision on May 8 to pull the United States out of Iran’s 2015 nuclear deal with world powers and reimpose tough economic sanctions on Tehran.

As the threat of renewed US sanctions starts to bite, Tehran increasingly needs dollars and neighboring Afghanistan, with a loosely regulated, dollarized economy and a border with few controls, is an obvious source.

No official figures exist for a trade conducted largely out of sight of the authorities, but moneychangers in Herat say there has been a clear increase since Trump pulled out of the nuclear accord.

Iranian rules allow travelers to bring in up to €10,000 ($11,697), which can be sold to banks in Iran, with the official rate at 42,450 rials to the dollar, well above an unofficial rate of some 77,000. The government has threatened people trading dollars at unofficial rates with arrest.

A shortage of dollars hurts importers and inconveniences Iranians who travel, study or do business abroad.

“Since the imposition of sanctions on Iran by the United States and the fall in the toman [each toman is 10 rials] against other foreign currencies, a lot of Afghan citizens have been taking large quantities of dollars across the border,” said Bahulludin Rahimi, president of the Federation of Moneychangers of Herat.

He estimated that as much as $2-3 million cross the porous borders of the western provinces of Herat, Farah and Nimruz into Iran every day.

The lawless regions of Farah, a remote and sparsely populated province south of Herat whose main city was briefly overrun last month by Taliban attackers, are already one of the main smuggling routes and dollars are also crossing the border.

“Afghanistan is a cash economy and it is very hard to control this,” said a financial official, who is closely involved in monitoring the traffic. “But if this trend continues, there will be a huge shortage of foreign currency in the country and further devaluation of the afghani.”

Cross-Border Trade

Afghan traders have always crossed into Iran to trade goods. But as the crisis has grown, the nature of the business has changed, said Hamidullah Khadam, president of the Herat Chamber of Industry and Mining.

“Dollars have always gone from Afghanistan to Iran, especially through Herat, but it’s really increased as the toman has fallen,” he said.

“The Iranians are trying everything to get hold of dollars and they’ve been very active about it.”

Many Afghan traders are taking advantage of the cheaper rial and importing goods such as cooking oil, biscuits, foodstuffs and various non-alcoholic drinks that they can sell at a higher price at home. Increasingly however, the profit that can be made on arbitraging the difference in the exchange rate on either side of the border has been significant enough to make it a business in its own right.

“It’s not clear exactly how much money is being transferred by businessmen and traders, but these days the fall in the value of the toman against the dollar has changed transferring money to Iran into a real business on its own,” said Khadam.

For Afghanistan’s central bank, charged with keeping the currency stable and with an eye on the exchange rate, reports of uncontrolled flows of dollars out of the country have caused concern, even if officials say they have yet to see any major impact on reserves.

Boosted by massive inflows of foreign aid, Afghanistan has reserves of around $8 billion and Wahidullah Nosher, deputy head of the Afghanistan Central Bank, said there was no sign of any major shortage of dollars on the market, where the central bank sells around $50-60 million a week.

“If it were happening, it would definitely damage the economy because if the dollar dries up in Afghanistan, it would put the central bank in a difficult situation,” he said.