The government has initiated consultations to impose a limit on cash transactions in a bid to control crime and corruption.

Finance Ministry officials said they were considering limiting cash transactions to Rs500,000 for the purchase of goods and services and other financial purposes. A senior official said a person can pay up to Rs500,000 in cash in a day at a shop while purchasing goods.

Nepal Rastra Bank (NRB), through the monetary policy for the current fiscal year, has also reduced the limit of cash transactions by Banks and Financial Institutions (BFIs) to Rs3 million from Rs5 million. As per the policy, any transaction over Rs3 million should be done through cheques in BFIs.

The government’s plan to limit cash transactions is in line with the Money Laundering Prevention Act 2008. The Act states: “The Government of Nepal, upon the advice of Rastra Bank, may publish a gazette notice requiring any sale or perchance of goods or services or other transactions mentioned in that notice to be transacted only through the financial institution or banking instruments.”

“It shall be the duty of all concerned to use financial institution or banking instrument by not using the cash while selling or purchasing goods, services or conducting other transaction mentioned in the notice under subsection.”

Krishna Devkota, joint secretary at the ministry, said they felt it necessary to limit cash transactions as such dealings cannot be recorded. “Various frauds and crimes are taking place due to cash transactions,” he said.

The officials said they have asked the Nepal Rastra Bank (NRB) to make recommendations through a board decision on this matter. “As the law has stated that the government can limit cash transactions in consultation with the central bank, we have sought the NRB’s recommendation,” said one of the officials.

Earlier, an NRB study team had recommended limiting cash transactions to Rs100,000, while also suggesting measures should be taken to ensure access to banking services in all areas of the country.

“It will not be practical if we impose a limit on cash transactions without giving people an alternative,” said a member of the study team.

Nepal’s 61 percent of the adult population has access to formal finance, and around 18 percent is completely excluded from financial services (both formal and informal), according to Financial Inclusion Country Report of Nepal 2014 prepared by Making Access Possible (MAP) Nepal, a donor-funded project being implemented by the NRB.

The cap on cash transactions is also expected to encourage the BFIs to reach out to unbanked areas. “This will open business opportunities for banks while many informal transactions will be formalised,” said another NRB official.

“When the transactions are formalised, it can be examined whether anybody has earned money illegally or the money has been used in illegal activities.”