Nepalis holding banned Indian banknotes of 500- and 1,000-rupee denominations will soon be able to replace the now-useless currency with legal tenders. But the ceiling on the exchange facility is most likely to be fixed at IRs4,500 per person as proposed by India.

During a meeting held in Nepal in March, officials of the Reserve Bank of India (RBI), the Indian central bank, had proposed to allow Nepalis to exchange demonetised Indian banknotes worth up to IRs4,500 per individual.

But officials of the Nepal Rastra Bank (NRB), the Nepali central bank, had declined the offer and demanded that the ceiling be raised to IRs25,000. 

As both sides declined to budge from their stance, the meeting had ended inconclusively. Since then, the NRB has written to the Ministry of Finance (MoF), seeking advice. 

“In the letter, the NRB has said every Nepali holding banned Indian currency should be allowed to exchange up to IRs4,500 for now as proposed by India.

The letter also says both the government and the NRB, in the meantime, should continue pushing Indian authorities to raise the ceiling beyond IRs4,500,” said a senior MoF official privy to the matter.

The MoF has taken the NRB’s recommendation positively and is all set to come up with a formal decision along this line.

“We are waiting for Finance Minister [Krishna Bahadur Mahara] to take a formal decision on this issue. Once that is done, we’ll ask the NRB to initiate the process of providing exchange facility for up to IRs4,500,” the official said, adding, “We believe allowing Nepalis to exchange up to IRs4,500 for now and continuously exerting pressure to extend the exchange limit would be the most practical thing to do, as Nepalis have waited too long to replace the demonetised currency with legal tenders.” MoF officials said the finance minister was supposed to take a decision on the matter on Sunday itself. But that did not happen “The decision will most likely be taken tomorrow (Monday),” the source said.

Once the minister gives the go-ahead signal, the MoF will ask the NRB to make necessary arrangements to provide exchange facility to Nepalis. Earlier, NRB said it had prepared a software to keep database of people seeking the exchange facility; serial number of bills of IRs500 and IRs1,000 submitted by these people; and their identification numbers.

The Indian government, in a surprise move on November 8, pulled IRs500 and IRs1,000 out of circulation “to unearth unaccounted wealth and fight corruption”. Since then, the NRB has also banned use of those notes in Nepal. Nepali central bank had allowed Nepalis to carry Indian banknotes of 500- and 1,000-rupee denominations based on the Indian government’s decision.

The Reserve Bank of India, in February 2015, introduced a new Foreign Exchange Management (export and import of currency) Regulations, allowing Nepali and Bhutanese citizens to “carry Reserve Bank of India currency notes of denomination IRs500 and/or IRs1,000 up to a limit of IRs25,000”.

The NRB has said IRs33.6 million in the denominations of 500 and 1,000 is within the financial system in Nepal. The figure includes cash parked at vaults of banks, financial institutions and NRB. 

But actual stock of banned Indian bank notes is expected to be much higher because Nepalis were previously allowed to carry Indian 500- and 1,000-rupee bank notes worth up to IRs25,000.