The National, November 14, 2012

Hadeel al Sayegh

Passengers flying out of Kabul carried with them more than US$4.5 billion (Dh16.52bn) in cash last year, leading to new rules restricting the amount of foreign currency that travellers can take out of the country to $20,000 at a time.

"I am very concerned about cash leaving Kabul Airport in dollars," said the central bank governor Noorullah Delawari. "We believe much of the currency outflow last year was destined for Iran. It's one thing to make transactions via the banking system, but it's worrying when it's leaving in cash."

Traders are flocking to Herat and other cities across Afghanistan to sell Iranian manufactured goods, such as home appliances and cookware and crockery - with payments made in dollars. As a result banks have witnessed a surge in demand for foreign currency.

"It is hard to control this situation. We have always had trade with Iran and we share a border with them," said Mr Delawari.

The government last month introduced the new regulations that set the $20,000 limit on cash being carried out of Kabul International Airport by individual travellers.

"I am comfortable with that figure. If we take it on an annual basis it's not worrying," Mr Delawari said.

The demand for payments in foreign currency has weakened Afghanistan's currency. The Afghani has lost almost 7 per cent of its value against the US currency since January, and now trades at about 52.5 to the dollar.

Iran's currency, the rial, has lost almost 20 per cent of its value in the same period as western-imposed sanctions over Tehran's nuclear programme have caused a surge in demand for foreign currency amid high inflation. A dollar is now worth 12,262.95 rials, compared with 10,235.95 in January. New measures introduced in February led the dollar to trade at 13,899.95 rials, forcing Iran's central bank to intervene.

Last month, Iranian authorities clashed with protesters who took to the streets in anger at the rial's plunge, and some shops refused to open because of rampant inflation.

The rapid decline of the Iranian rial has sparked problems all over the region, not least in Iraq.

In Baghdad, demand for foreign currency at the central bank's weekly currency auction doubled to $300 million from November to April, putting pressure on Iraq's $60bn foreign reserves.

The central bank said that the outflow of cash was mainly destined for Iran.

In August, the US president Barack Obama banned Elaf Bank, based in Baghdad, from any dealings with the banking system in the United States for allegedly functioning as a conduit to Iran.

"Iranians are trading with countries that don't have sanction policies in place like Afghanistan and Iraq … which is not illegal," said Peter Middlebrook, the managing director of Geopolicity, an international management consultancy and think tank.

"Afghanistan historically had extremely close trading ties with Iran. There are 250 roads leading into Afghanistan that are not necessarily policed or have customs officers.

"So there is little doubt that at the moment, Iran with such widespread sanctions, will be exploiting that as an open border to facilitate exports and imports," added Mr Middlebrook, who previously worked for the World Bank in Kabul.