Indian two thousand and five hundred rupee banknotes|: Dhiraj Singh/Bloomberg
Rs 2000 and Rs 500 banknotes | Dhiraj Singh/Bloomberg
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Nepal has requested the RBI to allow the use of Rs 200, Rs 500 and Rs 2,000 banknotes in the country.

New Delhi: The Nepalese government has asked the Reserve Bank of India (RBI) to make all Indian bills, including Rs 200, Rs 500 and Rs 2,000, legal tender in the Himalayan state, where the Indian rupee is widely used.

India has been reluctant to allow high-denomination currency notes to circulate in Nepal, where currently only the Rs 100 note enjoys official acceptance, as this could lead to people stashing illegal cash and fuel the flow of fake banknotes.

While RBI is still to consider the request, made last Friday, the central bank’s decision will have far-reaching implications on bilateral relations, especially in light of Nepal’s increasing warmth with China.

The background

Hundreds of thousands of Nepalese live in India, with more than 20 lakh working here.

The Indian rupee accounts for an estimated 25 per cent of the total money in circulation in Nepal, with the currency also used for the bulk of bilateral trade between the two countries. India is the largest trading partner of Nepal, a landlocked country located between India and China.

Also, the thousands of Indian tourists who visit Nepal every year have shown a preference to transact in the Indian rupee.

However, last month, the Nepalese government banned the circulation of Rs 200, Rs 500 and Rs 2,000 bills, which were introduced after India’s November 2016 demonetisation move but are yet to be notified by the RBI for use in Nepal.

The Narendra Modi government’s demonetisation exercise saw two denominations, the old Rs 500 bill and Rs 1,000, become illegal tender overnight.


Also read: Why RBI should learn from China and internationalise the rupee


Resentment for India

Besides Nepal, the Indian currency is also widely used in Bhutan, with people allowed to carry Rs 25,000 in Indian currency to the two countries.

In May 2017, the RBI exchanged Bhutan’s reserves of the demonetised bills, but didn’t extend the favour to Nepal, which still has an estimated Rs 10 crore in the old banknotes, despite multiple requests from Kathmandu.

India’s failure to exchange its stash of demonetised notes and not make the new notes legal tender in Nepal has stoked resentment against New Delhi in the country.

The Indian authorities feared that allowing the exchange of Nepal’s demonetised reserves may help black-money holders convert their illegal cash into legal money. 

However, according to the RBI’s annual report, released in August, 99 per cent of the demonetised currency notes returned to the system.


Also read: Rupiah will beat rupee in battle of high-yielders, Goldman says


 

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2 Comments Share Your Views

2 COMMENTS

  1. Nepal has decleared Big denomination of Indian currency illigal . That means the law will punish the person who is carrying big indian notes . There is no such a provision for any other currency in anyother country .

    Pakistani , Bangladeshi , Bhutani , Dollar or anyother currency are legally carried in Nepal .

    WHY NEPAL BANED INDIAN CURRENCY ONLY ?

    The answer is Nepal feel insecure holding Indian currency after demonetization . Millions of indian currency turned toilet paper in Nepal after that move .

  2. Big Brother should have a large heart. Have very pleasant memories of two visits to Nepal in the mid nineties, including the early morning flight to view Everest. Would sometimes clear the check for a meal partly in INR, partly in local currency. This use of Indian currency in Nepal is a bond we should value; would we be happier if they started using the yuan …

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