Nepal bans Indian currency notes of Rs 200, Rs 500 and Rs 2000

26 January 2019
Not only did demonetisation shock India, it also caught its neighbours off-guard—especially Bhutan and Nepal, where using Indian currency was allowed. This is an image for representative purposes.
Amit Dave / REUTERS
Not only did demonetisation shock India, it also caught its neighbours off-guard—especially Bhutan and Nepal, where using Indian currency was allowed. This is an image for representative purposes.
Amit Dave / REUTERS

In late 2016, Narendra Modi, the prime minister of India, unexpectedly announced that his government was demonetising all Indian currency notes of Rs 500 and Rs 1,000. These notes were to be exchanged for newly minted notes. Not only did the move shock India, it also caught its neighbours off guard—especially Bhutan and Nepal, where the use of Indian currency is allowed.

Bhisma Raj Dhungana, the director of the foreign-exchange management department of Nepal Rashtra Bank—the country’s central bank—told me that the new notes in the Indian market were circulated in Nepal as well. But the Indian government did not authorise the exchange of demonetised notes in Nepal with new ones. “India did not officially inform us if we can allow the circulation of these notes,” Dhungana said. According to media reports, after demonetisation, Nepal ended up with invalid Indian notes estimated to be worth Rs 950 crore—or $146 million—as of April 2018. Dhungana said that the NRB still holds demonetised notes worth Rs 6 crore.

On 20 January this year, the NRB banned the circulation of Indian currency notes of Rs 200, Rs 500 and Rs 2,000 in the country. While the central bank’s cache of invalid Indian currency seems to be the main reason behind the NRB’s move, India’s history of taking actions that leave Nepal’s economy in a limbo may also be a contributing factor.

Indian currency has time and again been outlawed in Nepal. In the early 2000s, Indian notes of Rs 500 and Rs 1,000 were banned in the country. The fear that counterfeit high-value Indian notes were circulating in the Nepali economy played into the ban; India has often claimed that counterfeit currency enters its territory via Nepal. In 2015, Nepal removed the ban and the Reserve Bank of India, the Indian central bank, permitted people to carry Indian notes of Rs 500 and Rs1,000 to Nepal, subject to a limit of Rs 25,000.

After demonetisation, the two countries discussed the exchange of demonetised notes for new ones several times—the deputy governor of NRB visited India in early 2017, and a team of RBI officials went to Nepal soon afterwards. But these meetings did not have a tangible effect—India did not issue a notification regarding the exchange of the notes.

In April 2018, shortly before the Nepali prime minister, KP Sharma Oli, visited India, he addressed his country’s parliament. “The Indian demonetisation has hurt Nepali nationals,” Oli said. “I will raise this in my meetings with Indian leaders.” While the India-Nepal joint statement regarding the visit had no mention of the issue, when Oli addressed the media upon his return to Nepal he said he asked Modi to resolve the matter. Clearly, Modi did not pay heed to his request.

Keywords: Reserve Bank of India Narendre Modi Nepal currency Nepal Rashtra Bank demonetisation Bhutan KP Sharma Oli
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