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New York Fed Accused of Confiscating $1.3B in Afghan Gold

Afghan Gold
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EDITOR NOTE: The Taliban has seemingly plundered all the cash and gold that the Afghan central bank was holding, but not all the country’s assets are held within its borders. Reports suggest that $1.3 billion-worth of gold reserves and other assets are in the possession of the NY Fed. After the Taliban’s hostile takeover, the Biden administration told Reuters, "Any central bank assets the Afghan government have in the United States will not be made available to the Taliban." This asset freeze means that the U.S. just essentially seized over a billion dollars’ worth of Afghan gold. This seizure, combined with the U.S. stopping the IMF from dispersing SDR funds to Afghanistan, shows that while the military war overseas might be over, the economic war is still in full effect and could become an even bigger conflict than the last one. 

Yesterday morning, shortly after the acting Afghan central banker chief, Ajmal Ahmady, fled the country (after he was "somehow pushed on board" of a military plane by his colleagues), and warning on twitter that the country has no dollars left domestically (i.e., any dollars and gold currently stored at the local central bank vault have been pillaged by the Taliban even though the country's new rulers vowed on Saturday that the treasury, public facilities and government offices were the property of the nation and "should be strictly guarded"), sparking domestic bank runs and a record rout in the local currency, the Afghani, some asked what that means for Afghan reserves stored offshore.

Conveniently, overnight Reuters provided a handy breakdown of the international reserves owned by the DAB (as the Afghani central bank is called). The most recent financial statement posted online shows DAB holds total assets of about $10 billion, including $1.3 billion-worth of gold reserves and $362 million in foreign currency cash reserves, according to currency conversion rates on June 21, the date of the report. Notably, a big chunk of the reserves aren't held in the country as we observed yesterday.

Digging deeper, the DAB's June statement stated that the bank owned investments worth $6.1 billion. While the latest report did not provide details of those investments, a breakdown in the year-end report showed that the majority of those investments were in the form of U.S. Treasury bonds and bills, most likely held by proxy at the Fed where they make up a portion of the $3.5 trillion in securities held in custody by the US central bank. As Reuters further notes, investments were made through the International Bank for Reconstruction and Development (IBRD), an arm of the World Bank, or through the FRBNY and held in New York. Among its smaller items are shares in an investment pool by the Bank for International Settlement, which is based in Switzerland, as well as the Economic Cooperation Organisation Trade and Development Bank in Turkey.

This is important because as we also learned yesterday, the US Treasury imposed a freeze on all Afghan reserves, depriving the Taliban - who remain on US international sanctions lists - of much needed cash. An Bidn admin official confirmed as much telling Reuters: "Any central bank assets the Afghan government have in the United States will not be made available to the Taliban."

Additionally, DAB's foreign currency cash holdings worth around $362 million consist almost entirely of U.S. dollars and were held at the bank's head offices and branches as well as the presidential palace, which is now in the hands of the Taliban and is likely lost for ever.

That's not all that is gone: according to the DAB, some $160 million worth of gold bars and silver coins held at the bank's vault at the presidential palace. Also gone is a hoard of 2,000-year-old gold jewellery, ornaments and coins known as the Bactrian Treasure, which was held in the Afghan central bank's vaults. The around 21,000 ancient artifacts were presumed lost until 2003, when they were found in a secret vault in the central bank’s basement, having survived the previous era of Taliban rule undiscovered. This time, they will be lost for good (Afghan lawmakers in January floated the idea of sending the treasures abroad for safe keeping, warning they were vulnerable to theft, according to local broadcaster Tolo News).

Afghan foreign reserves also consist of a pending $650 billion allocation of Special Drawing Rights currency reserves to the Fund’s 190 member countries on Aug. 23, whose fate as of this moment remains unclear. The distribution of the SDRs, the Fund's unit of exchange based on dollars, euros, yen, sterling and yuan, aims to shore up the reserves of developing countries strained by the COVID-19 pandemic. As an IMF member, Afghanistan is eligible for an allocation of about $455 million, based on its 0.07% quota shareholding in the Fund.

It is unlikely that the IMF will proceed with making any disbursements to the Taliban as insurgents gaining access to those assets would be hard to digest in capitals around the globe. Indeed, in 2019, the IMF suspended Venezuela's access to its SDRs after more than 50 member countries representing a majority of the Fund's shareholding refused to recognize Nicolas Maduro’s government as Venezuela’s legitimate ruler following disputed 2018 elections. We doubt there will be an international scramble to legitimize the Taliban, even if the regime is now desperate to portray itself as the moderate, women-respecting Taliban 2.0 (for obvious reason: it knows it needs access to the cash).

But most notably, the central bank's consolidated statement revealed that the New York Fed's gold vault located hundreds of feet below street level, held gold bars worth 101,770,256,000 afghanis or some $1.32 billion on behalf of the Afghan central bank at end-2020. And since this gold is effectively non-recourse to Afghanistan's new Taliban government, we asked publicly if this means that the Afghan gold has now been effectively confiscated.

Read more at Zero Hedge

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