Nepal's central bank, Nepal Rastra Bank, is still in possession of 5.5 million Indian rupees in the banned 500 and 1,000 denominations from when India demonetized those notes in 2016, according to Governor Maha Prasad Adhikari.
Speaking at a meeting of the Finance Committee under the House of Representatives on Monday, Adhikari said there is no arrangement to transfer those defunct Indian currency notes back to India through the banking system.
Nepal Rastra Bank has held on to the 5.5 million rupees in the hope that India would eventually facilitate an exchange, but that has not happened in the over seven years since demonetization.
Adhikari explained that Nepal does not have a legal mechanism to take Indian rupee notes of 500 and 2,000 denominations into its banking system, as Indian law prohibits circulation of those high-value notes outside of India.
He stated that Nepal had agreed to use the 500 and 1,000 rupee notes prior to 2016 demonetization, but a 2058 B.S. regulation only allows Indian citizens to bring up to 25,000 rupees when entering Nepal.
The governor said the non-circulation of the Indian 500 and 2,000 rupee notes has impacted hotels and businesses in the Terai, eastern and far-western regions of Nepal that relied on those bills.
At the committee meeting, members of parliament demanded lifting the ban on Indian 500 and 2,000 rupee notes, calling it unfair to restrict the currency of a neighboring country amid Nepal's economic challenges.
To provide alternatives to cash transactions, Adhikari said Nepal has reached an agreement with India for cross-border digital payments between Nepal's NCHL and India's UPI systems at a technical level. Over 1 million Nepali merchants have adopted QR-based payments for Indian tourists so far.
The governor added that Nepal is preparing to introduce its own national payment card scheme called the National Payment Switch in November to further facilitate digital transactions.
