Why is the Taliban clamping down on crypto exchanges in Afghanistan?

Following the Taliban takeover of Afghanistan's capital city Kabul last year, Afghans turned to cryptocurrency as the legacy money system came to a standstill.

Most bank offices had shut down, and those that were open saw long lines of people trying to withdraw cash. 

Foreign donations and payments were not possible via the banking system anymore. Hence transferring funds directly to a person's bitcoin wallet was a more feasible option.

However, a year later, the Taliban authorities are now cracking down on the local market, reportedly closing at least 16 cryptocurrency exchanges in the country's western Herat province, according to Blockworks.

It was not clear which cryptocurrency exchanges were impacted by the closures.

According to Sayed Shah Sa'adat, chief of the police's anti-crime division, the central bank outlawed cryptocurrency trading as the practice spawned scams.

Sa'adat said all local crypto business owners were detained, and their enterprises were shut down.

READ MORE: Afghan women entrepreneurs defy Taliban curbs on women's education

In June,  the Taliban-controlled central bank banned all online foreign exchange trading. 

A bank spokesman told Bloomberg that the practise is illegal and fraudulent.

After the Taliban's return, the United States blocked the group from accessing $7 billion in Afghan central bank reserves held on account at the Federal Reserve.

The Taliban are virtually cut off, and according to a former acting governor of the Afghan national bank, the group only has access to 0.1-0.2% of those funds.

In February, the armed group said they would discuss whether digital tokens could be permitted under Islamic financial customs.

Religious experts had long predicted that the Taliban would outlaw cryptocurrency because it has aspects of gambling and uncertainty, which Muslims view as sinful.

Other Muslim nations have adopted a more tolerant stance. For example, in Dubai's free zone, the United Arab Emirates permits cryptocurrency trade, while Bahrain has embraced digital assets since 2019.

In 2013, Roya Mahboob co-founded Digital Citizen Fund, a non-profit that teaches young Afghan women computer programming and financial literacy.

With 11 women-only IT centres in Herat and two more in Kabul, the organisation trained 16,000 women in everything from Windows software to robotics.

The organisation refocused its efforts after the Taliban took control to train young women in bitcoin via Zoom video calls.

After a market crash that destroyed about $2 trillion in value and drove many well-known companies into bankruptcy, governments from South Korea to the United States are tightening their controls on cryptocurrencies.

Prohibitions on cryptocurrencies are often less, though. For example, following China's example, Afghanistan has joined the list of nations that have outlawed all bitcoin transactions.

Afghanistan is among the top 20 nations in the world for cryptocurrency adoption, according to a report published last year by the blockchain research company Chainalysis.