HERAT –- The Iranian regime, which lifted all restrictions on the import of cash and gold into the country on June 14, has stepped up efforts to smuggle US dollars from Afghanistan via Herat, threatening a "collapse" of the Afghan economy, officials say.
The move by Tehran comes as the country faces mounting economic difficulties.
Iranian President Hassan Rouhani on June 14 instructed his country's Supreme Economic Co-ordination Council to lift all restrictions on the import of cash into the country, according to Iranian media outlets.
In addition, Rouhani asked the Ministry of Economic Affairs and Finance as well as the governor of the Central Bank of Iran to take necessary measures toward addressing Iran's shortage of cash in the country.
While hundreds of thousands of US dollars were still being transferred to Iran from Afghanistan when Tehran had its original restrictions in place, imports of cash into Iran are surging even more now that those restrictions have ended, said Mohammad Yaqub Mashouf, an economic analyst in Herat Province.
"With the collection and smuggling of US dollars to neighbouring countries, the Afghan economy will be badly affected," he said. "Afghanistan does not have exports and relies on foreign aid. When US dollars are taken out, its economy will collapse."
Da Afghanistan Bank reports indicate that $4.5 to $5 billion (347.2 to 385.8 billion AFN) is being smuggled annually from Afghanistan to neighbouring countries, mostly via Herat to Iran.
'Serious restrictions' needed
When smugglers ship US dollars to neighbouring countries, aid provided by the international community to the people and government of Afghanistan is wasted, as only smugglers and neighbouring countries benefit from it, Mashoof said.
"Serious restrictions must be imposed by the Afghan government on the transfer of cash at the borders. The Central Bank and security forces must have serious control and oversight over the market and at the borders to ensure that Afghan capital is not transferred to neighbouring countries," he added.
Even though authorities have severely restricted movement between Iran and Afghanistan because of the coronavirus pandemic, trucks still frequently move between the countries -- with many of them smuggling US dollars into Iran, said Bahauddin Rahimi, director of the Union of Money Traders in Herat Province.
Because smugglers depress the supply of US dollars in Herat, it has a higher exchange rate in Herat than in Kabul, he said.
"Da Afghanistan Bank has a restriction on the distribution of US dollars in Herat since they are being smuggled to Iran," Rahimi said. "This restriction has led to a shortage of US dollars on the market, adversely impacting businesses and transactions."
A number of money exchangers who operate at the Herat Currency Exchange market have noticed groups and individuals who on a daily basis buy US dollars in exchange for Iranian rials and transfer the dollars to Iran.
"Some currency buyers in Herat sometimes even buy US dollars at a rate higher than the market price," said Farid Ahmad Ahmadi, a money exchanger in Herat city. "Each one of them transfers tens of thousands of US dollars to Iran [every time]."
Nesar Ahmad Azimi, another a money exchanger in Herat city, also has watched smugglers using trucks to transfer dollars to Iran.
"Some people bring rials from Iran, buy US dollars here and transfer them to Iran," he said. "They disrupt the market and the currency exchange process. The smuggling of US dollars to Iran must stop, or it will lead to rising dollar exchange rates, causing lots of problems."
"There are many days when there are no US dollars on the market or they are scarcely available since some people buy up dollars daily at the market," he added. "We call on the government to arrest them and prevent the transfer of US dollars to Iran."
Government ramps up crackdowns
For its part, the Afghan government has taken strict measures to prevent the smuggling of US dollars abroad.
After the Iranian regime lifted restrictions on the transfer of cash, Afghan security forces have tightened restrictions on the borders, according to local authorities in Herat Province.
Police have measures in place in Herat city as well as at all exit and entry points of the city. Those who try to irresponsibly collect US dollars or intend to smuggle them will be dealt with by law enforcement officials, said Col. Obaidullah Noorzai, chief of the Herat Police.
"Police and intelligence units are present in Herat markets and observe individuals trying to buy US dollars and to smuggle them to neighbouring countries," he said. "A number of people accused of smuggling US dollars have been arrested."
"Highway Police, as well as Customs Police, are actively working on this. They deal very seriously with those suspected of smuggling currency out of the country," he added.
Because of the smuggling of US dollars abroad, Da Afghanistan Bank does not distribute dollars to private banks in Herat Province, said Anwar Shah Yousufi, chief of Da Afghanistan Bank's regional branch in Herat Province.
Dollars available at the Herat market come from Kabul via air and road, he added.
In order to help control the market, Da Afghanistan Bank in Kabul sells several million US dollars at the market two or three times a week, making them available to businesses, money exchangers and industrialists, he said.
Despite these efforts, Yousufi is aware that part of that money ends up abroad.
"Because of the differing exchange rates of the US dollar in Afghanistan and Iran, some mafia groups collect US dollars from the Herat market and transfer them to Iran," he said.