For traders in Afghanistan’s main currency exchange, U.S. sanctions against Tehran have created the ultimate arbitrage play -- one that involves frequent trips to neighboring Iran with smuggled cash.

At the bustling, three-story Sarai Shahzada market in Kabul, one trader sitting in a booth piled high with grimy banknotes explained how he and others use taxis to bring suitcases full of U.S. currency into Iran through Afghanistan’s remote Islam Qala border crossing. Each month he transfers about $220,000 in two or three trips, he said, speaking on condition his name not be used.

Traders generally travel from Afghanistan’s Herat province to Iran’s second-biggest city, Mashhad. They use U.S. dollars to buy rials from desperate Iranian sellers at black-market rates in excess of 120,000 rials to the dollar. These currency traders, who hold multiple-entry visas for Iran, then sell the rials in Afghanistan for a profit of as much as 30 percent, said Eimal Hashoor, a spokesman of Da Afghanistan Bank, the country’s central bank.

Traders can get the best prices for rials in Afghan provinces that border Iran, rather than in Kabul, said a second trader. He also asked not to be identified talking about smuggling as he counted a stack of rials on his desk.

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