Demonetisation: Nepal's central bank reduces INR exchange limits, awaits response from RBI

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The Nepal Rastra Bank (NRB) has reduced the exchange limit of Indian to Rs 2,000 from Rs 5,000 after India introduced new banknotes of Rs 500 and Rs 2000.

On Thursday, the NRB also requested the public not to use newly introduced currency notes of Rs 500 and Rs 2000, terming it "illegal", and added that any ratification of bank notes has to be done according to the Foreign Exchange Management Act.

The NRB has written a letter to the Reserve Bank of India (RBI) to facilitate Nepal with the new bank notes.

After Prime Minister Narendra Modi declared old bank notes of Rs 500 and Rs 1,000 as illegal tender, Nepal has stopped the exchange of Indian bank notes exceeding Rs 100. Nepal has also sent the letter to the RBI regarding the matter.

It is estimated that 21.9% of Nepal's Rs 1,039.21 billion foreign exchange reserve is in Indian currency.

The NRB also have formed a committee to recommend to the Indian government about the procedures to be adopted for the exchange of Indian currency.

"At the moment, we are in touch, our governor is in touch with the governor of the RBI. We have constituted a working group to recommend the Indian government what could be the procedures for exchanging Indian currency of Rs 500 and Rs 1,000 after it gives us the approval. So far, we already have sent the modalities and the documents which could be required to exchange these currencies," Director and Deputy spokesperson of the NRB Rajendra Pandit said.

The Rs 500 and Rs 1,000 Indian bank notes which were banned in Nepal till 2015 was lifted one-and-a-half years ago after lifting the ban on Nepalis carrying up to Rs 25,000 in Indian currency for general use.

With the declaration of demonetisation in India, Nepali banks have also stopped accepting Indian currency temporarily.