KATHMANDU, Nov. 9 (Xinhua) -- A day after India announced withdrawing Indian currency (IC) notes of 500 and 1000 rupees from circulation in the market, Nepal on Wednesday followed suit by banning their use in Nepali territory.
Nepal Rastra Bank (NRB), the central bank of the Himalayan country, issued a directive on Wednesday instructing banks and other financial institutions as well as money changers not to do any transactions of these notes.
The IC notes denominated up to 100 rupee is still exchangeable in Nepal. But, in case of IC notes of 500 and 100 rupees, Nepalese migrant workers and Indian nationals could take them in or out of Nepal up to 25,000 Indian rupees only.
Many Nepalese people in bordering areas with India hold 500 and 100 rupee IC notes as they depend on India market for informal trade.
Nepal's central bank said it had to declare the use of these notes in Nepal illegal after the Indian decision. NRB officials said that it will not have big impact on the country because Nepalese banking system and money changer companies have held a limited amount of such notes.
According to Basudev Adhikari, director at foreign exchange management department of NRB, the central bank will not accept such IC notes from banks and individuals as long as it becomes clear that Reserve Bank of India accepts them for exchange. It means, whoever has held these notes, will be in loss.
So there is a risk that many Nepalese in bordering areas may have to face huge losses for holding such notes.
Pashupati Murarka, president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI), the apex private sector body of Nepal, told Xinhua that traders in bordering areas usually hold such IC notes not just for informal trade across the border but also for payment to Indian transport service by even those who do business through formal channel.
"We are not sure about the extent of IC notes holding by the business community but it must be sizable," he said. The NRB said that it will hold talks with Indian central bank regarding the issue.
The Indian government's step is touted as an important move to end corruption and illegal cash holdings, besides putting a clampdown on tax evaders.
