Renewed political optimism, boosted by an influx of aid dollars, will underpin efforts to re-establish a local banking system to reconnect Afghanistan with international trading partners.

This will not be an easy task. Several difficult problems will need to be solved before the country has a network of functioning banks, capable of effectively managing letter of credit (L/C) and other trade finance instruments.

Central bank appointment

A significant step towards re-establishing a credible banking system came with the April appointment of Anwar-ul-Haq Ahady as central bank governor. The politically well-connected US-educated professor is charged with the task of unifying his country's economy and connecting it back into the global financial system.

It is next to impossible to arrange an L/C abroad through the 84 banks under Ahady's wing, they barely communicate with each other let alone the outside world. Even more importantly, they have completely lost touch with the central bank, and thus, to say that the local currency is in disarray would be a gross understatement.

Printing machine

Ahady told the London-based Financial Times: "My first concern was to regain control over the printing of money...for the past six years the central bank has lost control, and even before that it was simply a printing machine for the government to finance its deficit."

According to the International Monetary Fund (IMF), there are three currencies in circulation and more being printed. Two powerful politicians, Abdul Rashid Dostum and former president Burhannudin Rabbani have apparently printed substantial amounts of money over previous years.

Inflation

"Unless the issuance of new Afghan banknotes not backed by the central bank is stopped, it could lead to massive inflation and destabilise the economy," the IMF warned.

The Afghan authorities are clear that a new, single currency will have to be established, but devising a new currency that is acceptable to all parties is proving to be a lengthy and controversial process.

Euro option

Afghanistan's interim government has even been considering the Euro to replace the runaway Afghani notes, according to a report by Agence France Presse earlier this month.

The initiative, disclosed in Paris by Afghanistan Interim Prime Minister Hamid Karzai, has been proposed as a response to the flood of hundreds of millions of Afghani notes that are dumped every day on Kabul's unofficial monetary market by competing warlords.

This article represents the view of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.