15 August 2021
|Currency pair||Exchange rate||10-year yield, government securities|
The transition of political power occurring in Afghanistan today should have traders and brokers asking about the currency trade opportunities under a Taliban-led Afghanistan. The price of the Afghani has been falling in both US dollars and Chinese renminbi over the last 90 days. I suspect as Afghanistan moves through its transition over the next 48 hours that western investors will wait for the dust to settle on where yields Afghani-denominated securities will fall out.
After two decades in Afghanistan, the lightening quick deterioration in the ability of the government to maintain control of its territory speaks negatively about the United States as a stabilizing force in the region. That accolade right now may belong more in China’s court than the U.S. China has stayed engaged with Afghanistan primarily due to three concerns.
First, the protection of small and medium sized Chinese enterprises in Afghanistan; second, to stop the training of Uygur supporting insurgents from an area of Afghanistan that lies along China’s western border; and third, to maintain a vital component of its Belt and Road Initiative, a policy of transportation and communications infrastructure that facilitates the transfer of resources to China.
China is Afghanistan’s largest investor, having provided Afghanistan with telecom equipment and other telecom infrastructure. China extracts oil in the Amu Daya basin, and also mines lithium and copper, both essential to providing telecommunications equipment and facilities.
Geographically, Afghanistan provides China with the shortest route between China, the Middle East, the Persian Gulf, and the Arabian Sea, important for cost effective movement of trade.
And because China has shown no interest in “rebuilding Afghanistan”, including altering its political, social, or ideological institutions, it has been able to maintain a dialogue with the Taliban, important now more than ever as Afghanistan sees a change in leadership.
The takeaway: Traders should monitor the developing government relationships and take note of relative changes in income, prices, commodity availability, and interest rates.
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