The Indian government’s decision to withdraw 500- and 1,000-rupee banknotes from circulation has worried common Nepalis, businessmen and traders residing in border areas where the use of the Indian rupee is widespread.

Most of the Nepali citizens living in border areas travel to Indian towns for shopping and medical treatment, and hold Indian currency (IC) as liquid asset.

Following India’s surprise decision, Nepal Rastra Bank (NRB), issuing a circular on Wednesday, directed its branches, banks and financial institutions (BFIs), and money changers not to use or exchange IC notes of 500- and 1,000-rupee denominations.

According to Guru Prasad Poudel, chief of NRB’s Nepalgunj branch, a large number of people visited the office inquiring what would happen to the IC notes of those denomination they have. “They are worried that their money might be useless,” said Poudel. “We are unable to provide any information as we haven’t received any information from our head office over the issue.”

Although there is no official data, it is estimated that Nepalis living in border areas have held millions of rupees worth of IC notes of 500 and 1,000 denominations given the widespread use of IC.

“I had exchanged IC to visit India for treatment, but the ban has come as a shock,” said Om Prakash Manandhar of Nepalgunj. “I visited the NRB office early morning, but they refused to exchange the IRs500 and 1,000 bills I have. I don’t know what I am supposed to do.”

Besides the general public, traders and business people have also been hit. Traders in Birgunj, one of the major trading points, said they are finding it difficult to make payments to transporters for importing cargo from India.

“Around 600 cargo trucks enter Nepal from the Birgunj customs alone and cash payment is made in IC terms,” said a importer. “After the ban, there is confusion over the method of payment.”    

Some of the leading business people of the region, however, welcomed the Indian government’s decision and said despite the inconvenience in the short-run, the move will benefit Nepal in the long-run.

“Formal trade with India will increase after this decision,” said Pradip Kedia, president of Birgunj Chamber of Commerce and Industries. “With the increase in imports, the government’s revenue collection will also rise.”

Many traders import goods from India by sending money from informal channels and after the ban on IC of the largest denominations, it will be stopped, Kedia added.

The Indian government’s move will also discourage hundi, an illegal means of cross-border transfer of money. “Around Rs50 million is sent to various parts of India through hundi every day,” said a person involved in such activities. “There was no such transfer on Wednesday.”