digital currency Photo: VCG

Amid a deepening financial crisis that is putting Afghanistan's financial system on the brink of collapse, Afghan Taliban officials have approached Chinese businessmen and discussed topics concerning digital currency, a possible solution that some said could provide short-term relief to the capital crunch of the war-torn country, sources told the Global Times on Wednesday. 

Some Chinese blockchain companies said that they're adopting a "cautious attitude" on investing in Afghanistan due to lingering security concerns, but are interested in considering plans if the situation stabilizes and the Taliban government displays a welcoming attitude. 

While highlighting broad areas for potential cooperation ranging from providing underlying technologies to platform services, the Chinese businessmen also noted issues involving local digital infrastructure and telecom service, which they said may impede any broad use of digital wallets and crypto applications in the near future. 

Li Xijing, deputy general manager of Chinatown, a major Chinese business representative group in the capital of Kabul, told the Global Times that they recently met with officials from the trade department of the new Afghan Taliban government, during which many issues were discussed including the digital currency market.

According to Li, both sides talked about the difficulties of re-establishing Afghanistan's old financial system, and the Taliban government's tentative approach of setting up a new one.

The Taliban government reportedly has yet to take a stance on digital currencies. According to a report by Chainalysis in August, Afghanistan ranked in the top 20 of 154 countries in the 2021 Global Crypto Adoption Index, compared with its lowest position among the 154 countries last year. 

Industry insiders said that cryptocurrencies, such as Bitcoin, could offer an immediate helping hand for Afghans to bypass the Society for Worldwide Interbank Financial Telecommunications, the US dollar-dominated global payment system, as the country has been mostly cut off from international financial institutions, and its $10 billion in assets were frozen after the Taliban took power. 

Despite the surge in the use of cryptocurrency in Afghanistan, most Chinese blockchain firms are adopting a "wait-and-see" attitude in investing in the country, the Global Times learned.

"Discussions of investing in the Afghan crypto industry are very limited among Chinese blockchain players so far, mostly due to security concerns. But Chinese companies do have the ability to provide a one-stop service if [they are invited to] and the Taliban government includes digital currencies in its national economic policy," Shentu Qingchun, CEO of Shenzhen-based blockchain company BankLedger, told the Global Times on Wednesday.

Li noted that previously, Chinese companies consulted on investing in big data technology in Afghanistan. 

Another industry insider, who spoke on the condition of anonymity, told the Global Times that China has "rich experience and accumulated technology" in developing digital currencies that could be exported to Afghanistan if the situation stabilizes.

"We're talking about more than using cryptocurrency. China could also aid Afghanistan in issuing a central bank-backed sovereign digital currency to ameliorate its cash woes and currency circulation issues," the industry insider said, citing the example of China's ongoing trials of the digital yuan.

Wang Peng, an assistant professor at the Gaoling School of Artificial Intelligence at the Renmin University of China, told the Global Times on Wednesday that in cross-border trade, Chinese firms could also help "develop blockchain-based digital token systems that serve as digital warrants for direct barter exchange and clearance," given that Afghanistan has a dire shortage of foreign exchange. 

"Afghanistan could try out such a system in countries that it enjoys close trade ties with at first, such as China. This is conducive to partly restoring its financial order," Wang said

China resumed the "pine nut air transport corridor" with Afghanistan in October, as part of an effort to aid in its economic reconstruction. As of December 20, a total of 1,170 tons of pine nuts, carried in 26 chartered flights, had arrived in China from Afghanistan, generating more than 100 million yuan ($16 million) in revenue for the Afghan people.

But Chinese businessmen and industry insiders warned that hurdles remain, and it will take time before genuine business cooperation can take place in the crypto industry between China and Afghanistan.

Li said that due to the backward network technology in Afghanistan, internet connections are unreliable and slow, which poses barriers for the large-scale application of digital currency.

"The financial system of an individual country usually evolves from the traditional banking system, to third-party payment, and to digital currency. If Afghanistan directly adopts Bitcoin as legal tender, this means it is skipping the second phase. 

"The problem is: Could Afghan local officials have the understanding to properly govern and supervise it? And how long until the general public begins accepting it as a payment tool?" Shentu asked, indicating that the cost of investing could be fairly high for foreign blockchain companies.