Rupee shortage

The ongoing shortage of Nepali Rupee bills has exposed not only a managerial weakness but also serious failing in governance itself. On the eve of Dashain, the major spending period for Nepalis, banks are seeing serpentine queues of customers wanting to make cash withdrawals. And the banks have not been able to let them do so, citing a shortage of rupee bills. The shortage has created uproar across the country-- many public and private offices could not pay out salaries and Dashain bonuses to their employees; retail businesses have been unable to make necessary purchases; and in many districts school teachers have resorted to agitations.



In Baglung, teachers obstructed the operation of the local branch of Nepal Bank Limited after it failed to cash their checks. Teachers in other districts including Jhapa, Parbat, Mygdi and Dang have also threatened local banks with dire consequences if the bills crunch persists into the festival period. The families of many Nepalis working abroad have likewise not received the remittances sent to them.



The shortage is a result of both management failure on the part of Nepal Rastra Bank and governance failure in the country. The central bank may come up with any number of valid excuses for the shortage but it cannot be forgiven for failing to see the crunch coming and for not being able to avert it. No argument whatsoever can excuse such gross failure by a central bank. But past governments are equally to blame. Following the suspension of Nepal Rastra Bank Governor Bijaya Nath Bhattarai the government failed to appoint a full-time replacement and after months of confusion an acting governor was appointed but without the authority to put his signature on Nepali currency bills. Eventually, the government did give him that authority but by then it was already too late. That is basically what has precipitated the bills shortage.



Desperate to ease the shortage, Nepal Rastra Bank, which was established in 1956 to end the circulation of Indian currency in Nepal, has given tacit permission to commercial banks to issue Indian currency to customers. Legally speaking, any Nepali can purchase up to Rs 100,000 in Indian money from commercial banks after submitting an application.



The whole idea behind this provision was to assist Nepalis going to India since there is free mobility of people across the open border. However, what the central bank is currently doing is encouraging Nepalis to use Indian currency in the Nepali market, something that is downright illegal. Once the huge amount of Indian currency goes into circulation in Nepali markets it will take a long, long time before its use is brought under control. That’s the long-term danger the central bank is courting, besides of course leaving the whole country red in the face.

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