Nepal Suffers Collateral Damage From Indian Note Ban

Nepal has been in a tizzy ever since India banned high denomination bills. It will now permit trading in replacement currency only after an amendment in Indian law.

New Delhi (Sputnik): Nepal Rastra Bank, the official government bank of Nepal, has called the new Indian currency notes unauthorized and illegal. This has badly affected India-Nepal trade.

"These currency notes are not yet legal in India and these notes will be legal in Nepal only when India issues a notification as per the Foreign Exchange Management Act (FEMA)," Narayan Poudel, spokesperson of the Nepal Rastra Bank told media.

For Nepal it is a case of once bitten twice shy. Many Nepalese have been left holding substantial amounts of worthless Indian currency after New Delhi declared it invalid. In fact, the Nepal Rastra Bank is yet to solve this problem and has banned replacement currency notes of Rs 500 and Rs 1000 till Reserve Bank of India issues a fresh directive.

Under FEMA, a Reserve Bank of India notification allows citizens of foreign countries to hold a certain amount in Indian currency. Accordingly, Nepalese citizens can hold up to 25,000 Indian rupees. But the main problem with the Nepalese citizens is how to exchange their old currency notes of Rs 500 and Rs 1000.

India’s apex bank Reserve Bank of India had banned the use of old high denomination currency notes and introduced new currency notes of Rs 500 and Rs 2000.

Indian currency is widely accepted in Nepal due to the open border between the two countries.