India’s cash crunch affects Nepal, Bhutan

 India’s central bank has formed a task force to deal with the issue of providing an exchange facility to people in Nepal who possess Indian currency notes of Rs 500 and Rs 1,000 denomination that were recently withdrawn.

The decision has been communicated to the Nepali side, with the Nepal Rastra Bank (NRB) saying the task force will come up with ways to address problems faced by people in countries such as Nepal and Bhutan, where a large number of the scrapped notes are in circulation.

Indian currency is widely accepted in Nepal and Bhutan. Sources here said millions of rupees are currently stuck in banking channels and a huge amount is being hoarded by the public.

The NRB said Rs 500 and Rs 1,000 notes worth Rs 33.6 million were within Nepal’s financial system. This figure includes cash parked in bank vaults, financial institutions and the NRB.

But experts said the actual figure is expected to be much higher because Nepalese citizens were allowed to possess up to Rs 25,000 in the withdrawn notes.

After the Indian ban, Prime Minister Pushpa Kamal Dahal “Prachanda”, finance minister Krishna Bahadur Mahara and NRB governor Chiranjibi Nepal spoke with their Indian counterparts Narendra Modi, Arun Jaitley and Urjit Patel to discuss problems.

A statement from the NRB said Patel had informed Chiranjibi Nepal about the formation of the task force. Other NRB officials too spoke with their counterparts in the Reserve Bank of India to avert a possible crisis, and Indian officials indicated the issue would be resolved soon.

On Thursday, a parliamentary panel urged the Nepal government to take steps to facilitate the exchange of Indian currency notes possessed by Nepalese citizens.

The Indian ban has mostly affected people living along the border with India, Nepalese students in India, pilgrims and traders. India is a key destination for Nepalese students, pilgrims and people seeking medical treatment.

It is believed hundreds of thousands of Nepalese citizens, including those who earn a living as daily-wage labourers in India or those who rely on Indian markets to purchase essential items, possess the scrapped Indian notes.

On Monday, Prachanda too asked his Indian counterpart to arrange an exchange facility in Nepal for the withdrawn notes.


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