Hugh writes about cyberspace, digital currencies, economics, foreign affairs, and technology.
In August 2021, the Taliban seized control of Kabul soon after the departure of American and allied military forces from Afghanistan’s capital city.
One of the Taliban’s primary stated intentions include re-establishing the Islamic Emirate of Afghanistan, the formal name of the Taliban’s form of governance in Afghanistan from 1996-2001.
In its previous regime, the Taliban gained a significant reputation for brutality and enforcement of its extremist Sunni-inspired ideology, with the Taliban participating in a variety of illicit enterprises to fund the Islamic Emirate of Afghanistan.
The Taliban’s return to power presents a distinct use case for cryptocurrencies and central bank digital currencies (CBDCs) alike. Unlike its previous iteration of their rule, the Taliban now have control over a central Afghani currency, introduced by the Da Afghanistan Bank in October 2002.
However, the Taliban’s extremist beliefs will quickly shun this version of the Afghani, not only because of ideology but also due to access. Da Afghanistan Bank's acting governor, Ajmal Ahmady, has stated that much of Da Afghanistan Bank's funds remain overseas and thus inaccessible to the Taliban.
This crisis creates a need for a separate transactions mechanism between different regional threat actors within the Taliban umbrella and beyond.
Therefore, cryptocurrencies, and subsequently central bank digital currencies, present a potentially stable factor for conducting day-to-day transactions, in stark contrast to the Taliban’s violently unstable form of government. With this potential comes an associated increase in the threat actor utilization of both cryptocurrencies and CBDCs, with these bad actors utilizing these forms of payments reconciliation for their own nefarious purposes.
How Has the Taliban Previously Handled Money?
The Taliban have maintained significant forms of revenue generation despite their ousting from power in 2001. With the Taliban back in control of Afghanistan, it is easy to surmise that the Taliban will quickly grow and cement their revenue-generating operations to continue to fund their form of rule.
In addition to profiting from the local Afghan opium poppy trade, the Taliban also raises significant amounts of money from locally sourced taxes, with various sources accounting for annual income in the hundreds of millions of dollars. A United Nations report from September 2012 specifically highlighted ushr (a 10% tax on harvest) and zakat (a 2.5% tax on wealth), in addition to the myriad of other taxes that are levied at the provincial and local government levels.
However, despite these significant revenue sources, the Taliban were never able to effectively run the Da Afghanistan Bank in previous regimes.
During the previous height of Taliban rule, the Afghani currency was predominately regionally-driven and produced by local warlords, with the BBC reporting around seven different versions of the Afghani in circulation ousting in January 2002. Despite the Afghani being successfully consolidated by the Da Afghanistan Bank, the Taliban may further turn away from this form of the Afghani due to its Western origins. The Afghani has been predominately printed in Germany and Britain, with plans announcing French production of the Afghan in May 2021.
Threat actors like the Taliban have already begun to explore utilizing cryptocurrencies and CBDCs as funding and transaction mechanisms. Threat actor usage of cryptocurrencies has been documented to be on the rise, with the U.S. Department of Justice announcing the disruption of cryptocurrency operators and other digital financing efforts by Hamas’ al-Qassam Brigades, al-Qaeda, and the Islamic State in August 2020.
Privacy-oriented tools like cryptocurrency mixers also have the potential to be co-opted by these groups, with these tools’ focus on privacy being a threat actor’s dream for obscuring funding sources and money laundering. The expansion of the Taliban’s reach within Afghanistan will undoubtedly lead to more threat actors within the cryptocurrency and digital currency ecosystems.
Therefore, cryptocurrencies and CBDCs will undoubtedly see increased use by threat actors due to Taliban rule. The Taliban’s despotic form of governance will prevent the principles of decentralized finance from applying to this specific use case, with the Afghan population likely being prevented from utilizing cryptocurrencies, much less the digital infrastructure designed to support cryptocurrencies and CBDCs in the first place. This leaves the Taliban and its associated threat actors as the sole users of cryptocurrencies in the region, thus leading to an increase in threat actors within the cryptocurrency ecosystem.
Digital-focused Infrastructure and Conditions in Afghanistan
The phrase “digital infrastructure” is not exactly the first phrase that comes to most people’s minds when thinking of Afghanistan.
However, the infrastructure supporting digital services, including cryptocurrencies and other digital currencies, has been in development in the region since the Taliban’s fall in 2001. The Taliban’s previous removal from power opened significant development opportunities for digitally focused infrastructure over the past 20 years, alongside other factors driving increased technological adoption during this time.
Afghanistan has one of the highest proportions of young people in the world, with over 63% of its population being under the age of 25. Additionally, Afghanistan had significant growth in mobile cellular subscriptions over the past 20 years, rising from barely having 1 mobile-cellular subscription per 100 Afghans in 2003 to nearly 60 subscriptions for every 100 Afghans in 2019.
These factors would typically indicate a country ripe for unprecedented technological growth, but the tumultuous nature of Afghanistan prevented organizations from harnessing this potential even in the last 20 years.
Afghanistan was also the beneficiary of millions of dollars from the World
Bank to expand Internet connectivity and mobile application usage, with a variety of programs being established to focus on accelerating digital transformation within Afghanistan. In fact, projects like the Afghanistan Information and Communication Technologies (ICT) Sector Development Project attracted over $1.8B dollars of private investment, resulting in the creation of over 110,000 jobs and the addition of thousands of kilometers to the fiber optic national telecomputing backbone network in the region.
The People’s Republic of China (PRC) has also taken a significant interest in
developing digital infrastructure in Afghanistan. In August 2003, this interest was highlighted with an agreement between Huawei, ZTE, and the Afghan Telecom and Communication Ministry to expand 87,000 digital telephone lines within Afghanistan. These bilateral efforts eventually transformed into the Wakhan Corridor Fiber Optic Survey Project, a bilateral telecommunications development project nearing completion, as reported in January 2021. Further efforts for the PRC to implement infrastructure in Afghanistan can be highlighted by the December 2020 announcement of the Silk Road Optical Cable Cooperation Agreement between the PRC, Afghanistan, Kyrgyzstan, and Tajikistan.
With a myriad of social and technological factors driving digital infrastructure development, Afghanistan truly had immense potential in previous years. However, the re-introduction of Taliban rule will significantly stifle such growth, leaving these developments to benefit only the Taliban and other violent threat actors.
Afghanistan, CBDCs, and the PRC's Digital Yuan
The PRC has already begun to secure its interests in other domains aside from digital-supporting initiatives. The Belt and Road Initiative (BRI) has found a head start via the China-Pakistan Economic Corridor (CPEC) infrastructure project, with reports of an Afghanistan-specific extension to CPEC already in the works as of July 2021.
Chinese officials have also initiated two days of diplomatic talks in August 2021 with a Taliban delegation in northeastern China, further legitimizing the Taliban with China as a preferred partner and ally. Further PRC recognition of the Taliban as a legitimate government has also been provided since. It is through this avenue of approach that will see an increase in threat actor usage of central bank digital currencies: the PRC’s digital yuan is ripe for utilization by the Taliban on a multitude of fronts, capitalizing most prominently on a bilateral reliance on tight-fisted draconian rule.
First and foremost, the digital yuan would allow the Taliban to do transactions using a payments mechanism completely “devoid” of Western influence.
The use of this CBDC specifically would highlight the increasingly close relationship between the PRC and the Taliban, a bond that the Taliban is sure to want to develop on both political and economic fronts. Using a CBDC like the digital yuan could help the Taliban avoid anti-money laundering laws, Know-Your-Customer (KYC) regulations, and much more, thus providing the Taliban a legitimate way to conduct banking and financing operations free from Western eyes.
Additionally, using a CBDC like the digital yuan opens immense opportunity for the Taliban to interact with other threat actors using the digital yuan CBDC, whether this is for sanction evasion or to support transactions for firearms, narcotics, and other illicit substances. Therefore, the use of the digital yuan as a transaction system is a distinct opportunity for the PRC to increase PRC-Taliban relations and for the Taliban to network with other threat actors, thereby increasing the threat actor usage of cryptocurrencies and CBDCs at large.
Despite having growing pains over the past 20 years, Afghanistan’s prospects for growth have been significantly hampered by the Taliban takeover, drastically affecting economic or social growth.
Furthermore, the Taliban’s propensity to adhere to its brand of violent extremism will result in the dismantling of critical systems like the current iteration of the Afghani. As a result, the Taliban, and subsequently, its affiliated threat actors, will turn to cryptocurrencies to transact at the tactical level.
CBDCs, specifically the PRC’s digital yuan, offer further legitimacy to these threat actors in their financial transactions, resulting in the increase of such groups in terms of cryptocurrency and CBDC usage.
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