The afghani (sign: Afs; code: AFN; Pashto: افغانۍ; Dari: افغانی) is the currency of the Islamic Republic of Afghanistan, issued by the central bank Da Afghanistan Bank. It is nominally subdivided into 100 pul (پول), although there are no pul coins currently in circulation.
The original afghani (ISO 4217 code: AFA) was introduced in 1925, replacing the Afghan rupee that was used from 1891 and other currencies. In addition to being subdivided into 100 pul, 20 afghani were equal to one amani. The rate of conversion from the rupee is sometimes quoted as 1 afghani = 1 rupee 6 paisa, based on the silver contents of the last rupee coins and the first Afghani coins. The Afghani initially contained 9 grams of silver. The rupee was still in circulation until 1978.
The first afghani banknotes were introduced in 1935.
Except during World War I Afghanistan's foreign exchange rate has been freely determined by market forces. However, for some periods, a dual exchange rate regime existed in Afghanistan: an official exchange rate which was fixed by the Afghan Central Bank, and a free market exchange rate which was determined by the supply and demand forces in Kabul's money bazaar called Saraye Shahzada. For example, in order to avoid the seasonal fluctuations in the exchange rate, a fixed exchange rate was adopted in 1935 by the Bank-e Milli, which was then responsible for the country's exchange rate system and official reserves. Bank-e Milli agreed to exchange afghanis at 4 Afs against 1 Indian rupee in 1935. After the establishment of Da Afghanistan Bank as the Central Bank of Afghanistan, such a preferential official fixed exchange rate continued to be practiced. Although Da Afghanistan Bank tried to keep its official rate close to the Saraye Shahzada's exchange rate, the gap between the official and free-market exchange rates widened in the 1980s and during the civil war thereafter.
The afghani traded at 67 AFA to the U.S. dollar in 1973, whereas by 1992 a dollar bought 16,000 afghanis.
Banknotes from the period of King Zahir Shah's monarchy ceased to be legal tender by 1991.
After the creation of a dysfunctional government and the start of civil war, different warlords and factions, foreign powers and forgers each made their own afghani banknotes to support themselves financially, with no regard to standardization or honouring serial numbers.
In December 1996, shortly after the Taliban took control of Afghanistan's institutions, Ehsanullah Ehsan, the chairman of the Taliban's Central Bank, declared most afghani notes in circulation to be worthless (approximately 100 trillion Afghani) and cancelled the contract with the Russian firm that had been printing the currency since 1992. Ehsan accused the firm of sending new shipments of afghani notes to ousted president Burhanuddin Rabbani in northern Takhar province. The exchange rate at the time of Ehsan's announcement was 21,000 afghani to the US dollar. It was then devalued to 43 afghani to the dollar. The Northern Alliance then had banknotes produced in Russia which were sold on the markets of Kabul at half their value.
Abdul Rashid Dostum, who controlled a self-declared autonomous region in northern Afghanistan until 1998, also printed his own issues for the region.
Following the United States invasion of Afghanistan, the currency became highly destabilized. The afghani traded at 73,000 AFA per USD in September 2001, steeply soaring to 23,000 AFA after the fall of Kabul in November 2001, before plunging again to 36,000 AFA in January 2002. Around seven different versions of the currency were in circulation by that time. A former governor said at the time that maybe "trillions" of banknotes are in circulation as a result.