Kathmandu, February 4

Former governor of Nepal Rastra Bank Yubaraj Khatiwada today criticised the central bank for failing to find a way for the public to exchange demonetised Indian banknotes.

“As Nepalis were allowed to carry up to INR 25,000 in high denomination Indian banknotes, it is the responsibility of the government of India to give exchange facility to Nepal. However, Nepal government is equally responsible for providing the exchange facility for the amount that an individual can legally possess,” said the former governor. The demonetisation debacle has created chaos in Nepal as the central bank has failed to handle the situation prudently, said Khatiwada.

Speaking at a business conclave titled ‘Demonetisation in India: Implications for Nepal’, organised here today, he termed the way in which NRB has dealt with the Indian government’s demonetisation move ‘clearly immature’.

“Following the Indian government’s sudden announcement demonetising higher denomination Indian banknotes on November 8, our central bank also immediately decided to ban the use of such currency inNepal Rastra Bank the country on November 9 without even giving short-term notice to people to declare how much currency they were holding,” said Khatiwada, adding, “Moreover, the central bank decided to ban the Indian currency without even receiving notification from India.”

Khatiwada said if the central bank had provided a short-term window for Nepalis to deposit up to INR 25,000 in their bank accounts after declaring income source and other details, NRB would have a better understanding of the exact amount of the now-banned currency that is in the country.

Citing Bhutan’s example, where the citizens were allowed to deposit the demonetised Indian currency in their accounts, the former governor rapped both the government and NRB for failing to provide guardianship to the public holding Indian currency legally.

Deputy Governor of NRB Chinta Mani Siwakoti, on the other hand, informed that talks with the government of India were making headway.

“We have already invited the inter-agency committee of the government of India that comprises officials from Ministry of Finance, Ministry of External Affairs and Reserve Bank of India — which recommends to the Indian government exchange facility — to a meeting in Nepal,” said Siwakoti, adding, “As the Indian government has taken this move to counter money laundering and counterfeit notes, we want to fully assure them that demonetised money will not flow from India to Nepal and the person who deposits counterfeit notes (the numbers on each note deposited in Nepali banks will be tracked with support from the Reserve Bank of India) will be penalised as per the Foreign Exchange Regulation Act of Nepal.”

Siwakoti said the inter-agency committee of India will monitor the system developed by Nepal and probably give its decision on exchange facility up to a certain limit after the meeting. There is INR 78.4 million in high denomination Indian currency in the financial system and government mechanisms, according to NRB.

The government had formed a panel led by the deputy governor to sort out the issue of demonetised Indian currency and the panel had recently gone to New Delhi to meet with concerned Indian authorities seeking exchange facility for the banned notes.

Indian officials had shown concern about chances of ‘black money’ flowing back into the system through Nepal, to which the panel members have already submitted a revised exchange modality with stricter provisions to ensure only genuine people availed the exchange facility.