January 07, 2019:
On Sunday, Nepal has asked the RBI to declare newly circulated Indian currency notes of denominations higher than ₹100 legal tender in the country.
The Nepal Rastra Bank (NRB), the country’s central monetary authority, has written a letter on Friday to the Reserve Bank of India (RBI), asking it to make Indian bank bills ₹200, ₹500 and ₹2,000 legal tender in Nepal.
The NRB has asked the India’s central bank to issue a notification under the Foreign Exchange Management Act (FEMA), which will make Indian bank notes of denomination more than ₹100 legal tender in Nepal and to provide the exchange facilities to get bills of such denominations, it said.
The RBI has only allowed the circulation of Indian currency notes of ₹100 and less in Nepal and provides exchange facilities for bills of these denomination.
Before the demonetization of ₹500 and ₹1,000 bank notes in Nov 2016, the RBI had issued a FEMA notification allowing Nepali citizens to carry ₹25,000 worth of such bank notes.
After the demonetisation of ₹500 and ₹1,000 Indian currency notes, circulation of new bank notes of denominations ₹200, ₹500 and ₹2,000 was started by the Indian Govt.
The RBI did not issue the notification for the newly circulated bank notes, making their use illegal in Nepal.
“As the RBI was not allowing the circulation of the higher denomination Indian notes, we had to ban their use in Nepal to protect our citizens,” said Bhisma Raj Dhungana, chief of Foreign Exchange Management Department at the NRB.
“However, after we received complaints from people in various sectors, especially those who have to visit India frequently, we asked the Indian central bank to make such bank notes legal tender in Nepal.”
The circulation of such notes in Nepal, according to Dhungana, will solely depend upon the RBI and Indian government’s will.
Also the NRB, in the same letter, has asked the Indian central bank to provide exchange facility to Nepalis holding the banned Indian currency in the country.
The central bank has said the country’s banking system, including banks, financial institutions and NRB, hold Indian currency denominations of ₹500 and ₹1,000 worth ₹48 million.
But the actual stock of banned Indian bank notes is expected to be much more because Nepalis were previously allowed to carry ₹500 and ₹ 1,000 Indian bank notes worth up to ₹25,000.
Also, those residing in areas bordering India usually stash Indian notes of larger denominations as they have to go to Indian markets frequently to buy goods.
To make exchange facility available to Nepalis holding banned Indian currency, NRB has already prepared software to keep a database of names of people who sought exchange facility, serial number of bills, and their identification numbers, among others.
But the Indian Govt. is yet to take a decision, it said.