Demonetization, economic restructuring and monetary sustainability in war prone Afghanistan

Demonetization is a transitory economic intervention for currency regulation in the economy where a ban is imposed on legal currency circulation in the economy. This study analyses the impact of demonetization on the economic conditions of war-prone Afghanistan. The data for analysis is taken from World Bank database, Da Afghanistan Bank, Central Statistics Organization (CSO) and IMF websites for the period 2002 to 2017. T-test, GVA, Trend Forecasting and OLS are used in the analyzing the data. The present study showed the impact of demonetization on different sector of Afghanistan economy. The gross value added of Afghanistan in post demonetization showed a fluctuation trend in agriculture sector in long-run, in some year it‘s slightly decreasing compared to the previews years, but in the initial years demonetization impact is highly positive. As per the t-test analysis the positive effect of demonetization on GDP is significant in long-run. Through regression analysis and trend projection, we found that there is a linear trend in GDP i.e. GDP is increasing over the time. Findings suggest that Demonetization brought economic growth, as well as progress in financial sector through reforms and developments in formulation of monetary policy and fiscal policy in Afghanistan. The study will provide useful insights to Central Bank of Afghanistan, policy makers, and contribute to the general body of Knowledge.