US sets up Afghan Fund in Geneva to manage $3.5B in Afghanistan's reserves

The United States has announced it is setting up a foreign and professionally-run fund to manage $3.5 billion in Afghanistan's reserves, concluding it cannot trust the Taliban leadership with the country's money.

Washington's confirmation on Wednesday came days after TRT World's exclusive report revealed the US plan to deposit Afghan funds at the Bank of International Settlements and have the money distributed under a third-party monitoring system.

The new Afghan Fund, based in Geneva, will be put in charge of core central bank functions such as paying Afghanistan's international arrears and for its electricity imports and potentially for future necessities such as printing currency.

The decision comes after talks between the Taliban and the United States failed to convince President Joe Biden's administration that it should hand over assets frozen when the Taliban returned to power 13 months ago, despite the dire humanitarian needs in Afghanistan.

In a letter to Afghanistan's central bank, US Deputy Treasury Secretary Wally Adeyemo voiced regret that it had not addressed US concerns including demonstrating independence from the Taliban, enforcing pre-Taliban commitments against counter-terrorism funding and money laundering, and bringing in a reputable outside monitor.

"There is currently no institution in Afghanistan that can guarantee that these funds would be used only for the benefit of the people of Afghanistan, including DAB," he wrote, using the acronym of the central Da Afghanistan Bank.

"Until these conditions are met, sending assets to DAB would place them at unacceptable risk and jeopardize them as a source of support for the Afghan people," he wrote in a letter obtained by the AFP news agency.

The Afghan Fund will be incorporated in Switzerland with a board of two appointed Afghan economists unaffiliated with the Taliban and representatives of both the US and Swiss governments.

It will maintain an account with the Bank for International Settlements, which is owned by the world's central banks and also pay for key functions such as Afghanistan's access to the global SWIFT banking payment system.

The United States expects the bulk of the reserves to be preserved and "responsibly managed" until the situation changes, a senior official said.

The Taliban says it is open to a US proposal for third-party supervision but wants to retain authority over how it is used.

"The frozen reserve is the property of the people of Afghanistan; it is a reserve of the central bank used in its transactions," Taliban spokesperson, Suhail Shaheen, told TRT World last week.

"It is for the people of Afghanistan to decide on what to do with its reserve and how to use it. Unilateral decision about the reserve of Da Afghanistan Bank is illegal unless agreed to by DAB."

Dim US view of Taliban

The United States froze $7 billion in Afghan assets maintained in New York in August 2021 when the two-decade-old Western-backed government swiftly collapsed with Biden's pullout of US troops.

Biden in February said that half of the assets would be made available to victims of the September 11, 2001 attacks, which prompted the US invasion of Afghanistan that toppled the Taliban, who had given sanctuary to Al Qaeda.

The decision outraged the Taliban but they later opened talks with the United States on a way forward, with momentum building after Afghanistan suffered a devastating earthquake in June.

Then in August, the United States killed Al Qaeda's leader Ayman al Zawahiri in a strike on his home in Kabul. Secretary of State Antony Blinken declared that the Taliban had violated promises to reject terrorism made during a deal with former president Donald Trump to withdraw US troops.

The new fund will not go to assistance. In a statement, Deputy Secretary of State Wendy Sherman said that the United States has contributed $814 million in humanitarian aid since the Taliban takeover, channeled through international agencies and aid groups and not given to the Taliban.

The Afghan Fund will help "reduce suffering and improve economic stability for the people of Afghanistan while continuing to hold the Taliban accountable," Sherman said.

US open to 'pragmatic engagement' with Taliban

A World Bank survey conducted late last year found that 70 percent of Afghans said they cannot cover their basic needs including food, up from 35 percent who said so shortly before the Taliban takeover.

A senior US official, speaking on condition of anonymity, said the administration concluded that increasing liquidity in the central bank would not improve the humanitarian situation.

The official said that the United States was still open to "pragmatic engagement" with the Taliban, including on the central bank.

Another $2 billion in Afghan assets have been blocked by Britain, Germany and the United Arab Emirates. 

Another US official said the other nations could also send the Afghan reserves to the new fund.