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RBI may allow Rs 500 notes in Nepal after checking counterfeit menace

Deepak Goel in Kathmandu

The highest denomination Indian currency note of Rs 500 may once again be legal tender in Nepal -- a status withdrawn from it less than five years ago.

According to the governor of the Reserve Bank of India, Bimal Jalan, the apex bank has currently imposed a restriction on the flow outside the country of the Rs 500 note. This is to curb outgo of Indian currency and check counterfeiting of the note.

"Once we manage to successfully tackle the problem of counterfeiting, I'm sure we will be able to once again allow export of this note to neighbouring Nepal," Jalan told a local English daily, the Kathmandu Post.

Jalan is currently here to attend the ongoing 28th meeting of the Board of Directors of the Asian Clearing Union.

Meanwhile, the RBI has recommended to the government that the Rs 1,000 denomination currency note be reintroduced. This will facilitate export of the Rs 500 note to Nepal since the restriction on outgo is placed normally on the highest denomination note only.

India's close neighbour Nepal, though a sovereign nation, has traditionally had Indian currency as legal tender and any denomination note -- though not those torn and terribly soiled -- is readily accepted in any commercial transaction.

And so was the case with the Rs 500 denomination note till 1994, when the RBI woke up to the fact that as per its own regulations, no currency note larger than Rs 100 denomination may be taken out of the country.

Consequently, the RBI informed its Nepali counterpart, the Nepal Rashtra Bank, that the free circulation of the Indian Rs 500 note in Nepal was in contravention of the RBI guidelines. Soon after, the RBI issued a notification declaring the Indian Rs 500 note ''illegal'' in Nepal.

Yet the note commands an appreciable premium in the Himalayan country and, unofficially, it is most readily accepted there.

This is due to the numerous Nepali importers of third-country goods cherishing the Indian Rs 500 note next only to the US dollar. They reportedly find it most convenient to pay for their mostly highly under-valued imports -- especially from the south-east Asian and Arab Gulf countries -- which are largely directed towards the large Indian consumer market.

And with the NRB considering the Indian Rs 500 note ''illegal'' while the importers intensely desire it, a piquant situation arose recently when police here detected large consignments of Indian currency -- all in Rs 500 denomination -- being smuggled out of Nepal.

Nepali police detected and seized two consignments of Indian currency being smuggled out -- one amounting to Rs 10.21 million and the other Rs 5 million. But the accused in both cases were let scot-free when the NRB declared the seizures as ''mere pieces of printed paper'' since the Indian Rs 500 denomination note is not ''legal tender'' here.

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