It is all because of over dependence!

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WM Correspondent

India is ignoring Nepal’s request to provide the exchange facility of Rs1000 and Rs 500 denominated Indian Currency (IC) notes though it has already one month the southern neighbour banned such notes.

The Indian government has a separate committee to look into the issue of IC notes in Nepal and the Nepali authorities are also holding talks with the southern neighbor in this regard.  But nothing has yet been decided, thus creating a great deal of anxiety among the banks as well as general public holding the IC notes in Nepal.

Nepal Rastra Bank (NRB) has already proposed a modality to collect the IC holding up to IRs 25000 from the individuals as allowed legally by the central bank.

Hundreds of thousands of Nepalis who work as labourers in India, visit the neighbouring country seeking medical treatment and rely on Indian markets to purchase daily essentials still hold these notes. Also, many Nepalis who make pilgrimage tours to India and engage in cross-border trade also possess a big stock of the now-defunct Indian notes. Nepal’s banking system has held 33.6 million such notes.

 In the case of IC notes of Rs1000 and Rs 500, India had allowed using them in Nepal only last year. So, the problem is not as big as it could have been. IC notes up to IRs100 are, however, freely exchangeable and there are some locations in Nepal where only IC notes are in daily use.

The delay in exchanging the IC notes in Nepal has also raised concerns if they will be exchanged by the Indian authorities at all. If they don’t, what are the options available for Nepal?  There are hopes among the Nepalis holding those notes that the NRB will ensure trouble-free currency-exchange facilities.

 But the central bank cannot be expected to do anything without first being sure that the defunct IC notes would be exchanged by the Reserve Bank of India.

 Nepal is heavily dependent on India as two/ thirds of the total imported goods of the former come from the latter. Most of the goods are purchased by paying IC while US dollar is used largely for the import of raw materials of industrial goods. While cash notes are not mandatory for formal trade between the two countries, large amount of notes are used in informal transactions that take place across the bordering areas.

The latest episode has clearly showed how important it is to ensure the widest possible use of domestic currency in the country. At the same time, it shows the over dependence on foreign currency is troublesome for the country’s financial system.

 That is why the government and the central bank should take necessary steps to increase the use of domestic currency in every corner of the country.

Nepal has pegged its currency with IC which has ensured a sort of stability in the currency market. But it is making the Nepali economy to dependent chronically on the Indian one. The Nepali currency might have been weakened against US dollar to a higher degree than it is today but pegging with IC has kept value of domestic currency in line with IC’s exchange rate with the dollar.

In the long-term, it would be good to adopt free exchange rate with foreign currency while continuing the current set up.


Indian Currency 1000 & 500

Friday, Dec 09, 2016 11:58 am


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