Bhutan seeks bills, Nepal time

Charu Sudan Kasturi, TT, New Delhi, Nov. 19: Bhutan has asked India to rush Rs 100 bills to the country and Nepal wants more time to implement the Narendra Modi government's recall of old high-value currency notes.

Both countries have asked India to decide urgently on ways to ease the pain their economies - heavily dependent on India's currency - are facing following the Prime Minister's November 8 announcement, their central bank governors told The Telegraphtoday.

Nepal, where India allowed the use of Rs 500 and Rs 1,000 notes only in January 2015, is now struggling to take back those notes from its citizens, said Chiranjibi Nepal, governor of the Nepal Rashtra Bank (NRB), the country's central bank.

There is little clarity yet, governor Nepal said, whether the task of collecting notes will even be possible in a country where only 30 per cent of the population hold bank accounts.

Further east in Bhutan, the only country which pegs its currency - the Ngultrum - to the exact value of the Indian rupee, a currency crunch is staring at traders and tourists, said Dasho Penjore, the governor of the country's central bank, the Royal Monetary Authority (RMA).

Tourists in Bhutan can't find enough Rs 100 notes to manage. Bhutanese traders who frequent India and so hold old high-value notes, are suddenly trapped without Indian cash, Penjore said.

"We are running short of Rs 100 notes," Penjore said from Thimphu. "We have yesterday requested more Rs 100 notes from the Reserve Bank of India and we're hoping we get some by Monday. We need it urgently."

Both countries have asked their citizens to deposit their old Rs 500 and Rs 1,000 notes in their bank accounts. But the process is complex and the time short.

Nepal and Bhutan are the only countries in the world that accept Indian currency - the Soviet Union did, for a while, during the days of Cold War bonhomie before the communist state collapsed.

Over 1.5 million Nepalese citizens work in India and send back money in rupees. But the open border between India and Nepal - citizens of the two countries do not need visas to cross over - has in the past been misused, India contends, by terror groups from Pakistan to smuggle people, unaccounted-for "black" money and fake Indian currency. Till January 2015, India did not allow Rs 500 and Rs 1,000 notes to be used legally in Nepal - Rs 100 notes were the highest value bills allowed.

That changed in January last year after Modi had two months earlier announced that Rs 500 and Rs 1,000 notes would be allowed in Nepal.

Now, less than two years later, India has made clear to Nepal that it will not accept any old notes that aren't accounted for first by Kathmandu - in effect meaning that unlike Indians, Nepalese can't "exchange" notes, and can only deposit them in bank accounts.

Governor Nepal said he had set up a committee within his central bank to examine possible mechanisms to take back all the old invalid notes and then return them together to the RBI. The RBI, he said, had also set up a committee to examine Nepal's concerns.

"We are likely to recommend that every Nepalese who has old notes but not a bank account open an account and deposit the money if they want the value in return," Nepal said, before referring to the enormity of this challenge, given that only a minority of the country's citizens hold bank accounts. "Time's a big problem - and so yes, we would like more time from India to carry this out."

For both countries, the sudden ban on notes has also meant the prospect of a temporary and sudden outflow of money - for their central banks and for their people.

An estimated Rs 3,500 crore in Indian currency notes of Rs 500 and Rs 1,000 are in circulation in Nepal.

Penjore said he estimated "Rs 1 billion" or Rs 100 crore would be deposited by Bhutanese nationals in their banks in Rs 500 and Rs 1,000 notes - a significant amount for an economy less than a thousandth the size of India's.

Worse, 30 per cent of the RMA's international monetary reserves are in Indian rupees.

The money collected by the central banks of the two countries will eventually be handed over to the RBI, which is expected to then reimburse these nations an equivalent amount in fresh currency. This money will then be deposited by the central banks of Nepal and Bhutan in the accounts of its citizens who deposited the old notes.

Like Nepal, Bhutan too is struggling for time - despite the relatively smaller amounts of Rs 500 and Rs 1,000 notes expected to be deposited.

Bhutan had initially announced that its citizens could deposit old Indian notes by December 15 - and the RMA would hand over the notes to the RBI by December 30.

But the RMA has had a rethink. It can't afford a last-minute crisis for its fragile economy, Penjore suggested. It has now declared that all deposits must be complete by November 30, giving it a month to take the cash to the RBI.

"We don't want to take a risk going last minute to the RBI," Penjore said. "We can't take that risk."