FUNCTIONS OF DAB

The Da Afghanistan Bank (DAB) serves as the central bank for the Islamic Emirate of Afghanistan (IEA). The establishment of DAB occurred in 1939. The Islamic Emirate of Afghanistan was created in 2021. Starting now, the DAB is actively working to improve the Shria-based Islamic Tamweeli system in Afghanistan, under the leadership of Hazrat Ameer-ul-Moumineen. It is necessary to revise and amend the Monetary and Banking system of Afghanistan. The five primary aims of DAB are as follows:

1. The responsibility for designing and implementing monetary and credit policies, taking into account the overall economic policy of the country, lies with the DAB.
2. Preserving the stability and purchasing power of the national currency.
3. Ensuring the stability of the balance of payments
4. Enhancing the efficiency and ease of conducting trade-related transactions
5. Enhancing the country's capacity for economic expansion

In accordance with the provisions of our proposed Banking Act of IEA, the DAB is entrusted with the duty of carrying out the following functions:

1. Implementation of Monetary and credit policy۔

2. Distribution and issue of currency in the form of banknotes and coins.

3. Oversight of Tamweeli institutions and governmental transactions.

4. Development and enforcement of policies and regulations pertaining to foreign exchange policies and transactions.

5. Gold transaction regulations

6. Development and enforcement of policies regarding domestic currency transactions and the movement of funds into and out of the country.

Few of the functions of DAB are explaining in detail as under

Issuance of notes and coins

DAB should have the exclusive responsibility for printing and issuing currency notes. DAIMG proposed to the IEA that the currency notes should not be considered as assets of the DAB. Currency should be printed based on the specific requirements of the real economy (i.e production) . The commercial banks and deposit taking Tamweeli institution (DTI) should refrain from credit creation.

Supervision of Tamweeli institutions and government transactions

• Monitoring of Tamweeli institutions and governmental transactions
• The DAB, as the government's bank, is required to manage government accounts and facilitate the transfer of funds to state firms and programmes.

Monetary Policy (MP)

The aforementioned functions are mostly executed by monetary policy measures which regulates the money supply.

DAIMG recommends that DAB does not utilize the OMO or interest rate as instruments for implementing monetary policy. The DAB should have exclusive jurisdiction over the printing and issuance of money, with no provision for credit currency supplied by commercial banks.

In the IEA, money should be seen as a medium of exchange rather than a commodity that is bought and sold in the financial market in exchange for an interest rate.

Role of Printing of currency in MS

• The direct printing of currency by the DAB increases the money supply (MS).

Deposit-taking Tamweeli Institute (DTE) role in MS

• The growth of DTE promotes saving and leads to a decrease in the money supply (MS).
• An increase in the Amanat (امانت) account results in a reduction in the money supply (MS).
• In the short run, an increase in the Qurz-Hassan (قرض حسن) account leads to a decrease in the money supply (MS).
• An increase in the Doulatafzai (دولت افزائی) account causes an increase in the money supply (MS). As it stimulates investment in the productive projects

Project base money supply (PBMS):

Refers to the total amount of money available for a specific project. We can understand it with an example.

• When the government announces a project, say with a worth of AFG100 million, both domestic private companies and international public companies invest in it. If IEA holds 60% of the shares, while the remaining 40% is retained by the IEA to cover project expenses.
• The IEA generates 40% of the project cost, which amounts to AFG 40 million, by printing money. This process involves a straight transition from DAB to the allocation of funds for purchasing, salary, or other expenditures. This will augment the money supply.
• The AFG 40 million foreign investment. DAB will receive this amount of foreign exchange and will thereafter issue an equivalent amount of cash into the economy. This also leads to an increase in the money supply.
• The domestic investor will utilise the AFG 40 million for purchase and other investments by withdrawing their funds from Tamweeli institution. The payment can be made either in cash or via cheque. The MS will experience an expansion.

In the Tamweeli model, commercial banks or deposit-taking Tamweeli institutes (DTIs) do not participate in credit creation as they are required to maintain a 100% reserve in Amanat deposit.

• Both the term and worth of the project will have an impact on the MS. A short-term and more expensive project will have a greater impact on the MS.
• The rate of profit is a factor that influences changes in the MS. If the profitability of the projects improve, it will enhance the PBMS. Conversely, if decline, it will diminish the PBMS.

Trade base money supply (TBMS)

• Exporting leads to a rise in the money supply (MS) due to the corresponding increase in foreign exchange reserves. The reserves will be deposited in the DAB, which should be the sole institution that accepts foreign exchange.

Role of Aggregate consumption to influence MSs

• Government programmes that increase the aggregate consumption leads to an increased demand for currency. Conversely, if aggregate consumption declines, the demand for currency decreases as well.

Role of Fiscal policy (FP) to influence the MS

FP refers to the use of government spending and taxation to influence the money supply (MS).

• An expansionary fiscal used increase the MS
• Contractionary fiscal policy is responsible for the contraction of MS.
• The excess printing of money (i.e. excessive with regard to the need of productive sector) will also increase the money supply.

Consequences of rise in MS

• Money supply increase in the intended to stimulate domestic economic growth and employment. However, it is important to note that this may also lead to an increase in inflation. Inflation, when accompanied by economic expansion and increased employment, is not necessarily detrimental. An unrestrained escalation in inflation can be managed through alternative direct measures.