As mentioned in our previous blog, the recent demonetization of the INR 500 and INR 1000 notes has thrown Nepali citizens, especially ones residing near the border between India and Nepal, into a state of uncertainty. With an estimated INR 35 million in INR 500 and INR 1000 denominations currently within the formal financial system of Nepal, steps have to be taken to direct citizens on the best course of action they can take. Nepal Rastra Bank (NRB) is currently corresponding with Reserve Bank of India (RBI) but no concrete solution has been reached as of now. So far, NRB has directed banks and financial institutions (BFI’s) and money changers not to deal in INR 500 and INR 1000 notes until further directions have been received from the RBI.
The Bhutanese Blueprint
While NRB is currently waiting for further directions from RBI, Bhutan’s Royal Monetary Authority (RMA) has issued directives to its citizens regarding the demonetization of Indian currency. Bhutan, unlike Nepal, allows for the use of INR denominated currency in day-to-day transactions. Therefore, it was seen as imperative for RMA to address the issue swiftly. Major highlights from the directive are as follows:
- INR 500 and INR 1000 notes may be deposited in bank accounts by December 15, 2016 to enable RMA to surrender the notes to RBI by December 30, 2016.
- One can exchange INR 500 and INR 1000 notes of aggregate value INR 10,000 only or below held by a person at any bank branch.
- The equivalent value of the INR 500 and INR 1000 notes tendered can be credited to Ngultrum (the Bhutanese currency) account maintained by the tenderer at any bank.
What Nepal can Learn from Bhutan?
Bhutan has acted diligently to address this sudden change and Nepal can take example from their Bhutanese counterpart in issuing directives for exchange of INR 500 and INR 1000 notes. Nepal, like its Himalayan counterpart, needs to act swiftly in order to meet the December 30, 2016 deadline set by India to exchange notes.
Like RMA, NRB should issue a directive to deposit INR 500 and INR 1000 notes into bank accounts till a specific date and then hand it over to the RBI. Exchange through money lenders should also be authorized for specified amounts of INR till a specific date. Special focus should be directed by NRB to citizens residing in border economies as they have higher exposure to the Indian currency given their proximity to India.