Exclusive-Taliban in talks with Russia, China for trade transactions in local currencies

By Mohammad Yunus Yawar and Charlotte Greenfield

KABUL (Reuters) - The Taliban administration is in advanced talks with Russia for banks from both sanctions-hit economies to settle trade transactions worth hundreds of millions of dollars in their local currencies, Afghanistan's acting commerce minister said.

The Afghan government has made similar proposals to China, the minister, Haji Nooruddin Azizi, told Reuters on Thursday. Some discussions have been held with the Chinese embassy in Kabul, he said.

The proposal with Russia, Azizi said, was being worked on by technical teams from the two countries. The move comes as Moscow focuses on using national currencies to shift reliance away from the dollar and as Afghanistan faces a stark drop in the U.S. currency entering the country due to aid cuts.

"We are currently engaged in specialised discussions on this matter, considering the regional and global economic perspectives, sanctions, and the challenges Afghanistan is currently facing, as well as those Russia is dealing with. Technical discussions are underway," Azizi said in an interview at his office in Kabul.

The Chinese foreign ministry and the Russian central bank did not immediately respond to requests for comment.

Azizi added that annual bilateral trade between Russia and Afghanistan was currently around $300 million and that was likely to grow substantially as the two sides boost investment. His administration expected Afghanistan to buy more petroleum products and plastics from Russia, he said.

"I am confident that this is a very good option...we can use this option for benefit and interests of our people and our country,' Azizi said.

"We want to take steps in this area with China as well," he said, adding Afghanistan had around $1 billion in trade with China each year. "A working team composed of members from the (Afghan) Ministry of Commerce and the Chinese embassy which is an authorized body representing China in economic programmes has been formed, and talks are ongoing."

Afghanistan's financial sector has been largely cut off from the global banking system due to sanctions placed on some leaders of the ruling Taliban, which took over the country in 2021 as foreign forces withdrew.

Rivalry with China and fallout from Russia's war in Ukraine have put the dollar's status as the world's dominant currency under fresh scrutiny in recent years.

In December, Russian President Vladimir Putin questioned the need to hold state reserves in foreign currencies since they could easily be confiscated for political reasons, saying that domestic investment of such reserves was more attractive.

The dollar has had a lock on commodity trading, allowing Washington to hinder market access for producer nations from Russia to Venezuela and Iran.

Afghanistan since 2022 has imported gas, oil and wheat from Russia, the first major economic deal after the Taliban returned to power facing international isolation following 20 years of war against U.S.-led forces.

Billions of dollars in cuts to aid to Afghanistan, accelerated this year by the United States, have meant far fewer dollars, which are flown in cash for humanitarian operations, are entering the country.

Development agencies and economists say the Afghani currency has so far remained relatively stable but may face challenges in future.

Azizi said that the stability of the currency and his administration's efforts to boost international investment including with the Afghan diaspora, would prevent a shortage of U.S. dollars in the country.

(Reporting by Mohammad Yunus Yawar in Kabul and Charlotte Greenfield in Islamabad; Additional reporting by Antoni Słodkowski and Elena Fabrichnaya; Editing by Raju Gopalakrishnan)