Nepal Rastra Bank (NRB) is preparing to collect recently-banned Indian banknotes of 500 and 1,000 denominations from Nepali citizens and send them to Reserve Bank of India (RBI) for verification before offering equivalent exchange in Nepali currency.

Devising a modality for the currency exchange facility—as requested by the Indian Embassy in Kathmandu—the Nepali central bank has ruled out over-the-counter exchange scheme as it lacks resources to identify counterfeit currency.

“As per our proposal, we will collect the demonetised Indian currency (IC) notes from Nepali citizens through banks and financial institutions (BFIs) and send them to RBI for verification,” said NRB Deputy Governor Chinta Mani Siwakoti. “We do not have expertise or machines to identify fake IC notes. So we will only exchange those bills verified by the Indian central bank.”

NRB was initially planning to ask RBI for the machines. “However, given India itself is facing shortage of such machines, we decided to send the IC bills collected from Nepalis to India for verification,” Siwakoti said. “An individual can exchange up to IRs25,000 only as it is the legal threshold up to which a Nepali can hold IC in 500 and 1,000 denominations.”

As per NRB’s modality, Nepali citizens have to open bank accounts in BFIs and deposit the nullified IC notes to receive equivalent exchange directly in their accounts.

NRB has verbally informed the Indian embassy about its plan. The central bank plans to officially submit the plan to the Embassy on Sunday. The embassy will then forward the modality to the Indian government.

NRB on Thursday had formed a technical committee under the leadership of Siwakoti after the Indian embassy asked the central bank to prepare a modality for exchanging the now-invalid IC bills held by Nepali citizens.

The panel includes representatives from the Finance Ministry, NRB’s Foreign Exchange Department, Nepal Bankers’ Association and Development Bankers’ Association.

During a meeting between NRB and the embassy on Thursday, the former was asked to prepare a modality in such a way that it prevented Nepal from being used as a clearing house for illegal money. Siwakoti said use of formal banking channel will discourage exchange of illegal money.

On Tuesday, the Indian government had also formed a taskforce under the leadership of RBI to come up with a modality to address problems being faced by people in Nepal and Bhutan where the circulation of the banned Indian notes is high.

The formation of the Indian taskforce, according to NRB, signals a solution to hardship faced by Nepalis who possess the scrapped IC notes is imminent. “Chances are high we will start collecting the IC notes form Nepali citizens by next week,” said Siwakoti.

Earlier on Monday, Prime Minister Pushpa Kamal Dahal had urged his Indian counterpart to arrange exchange facility in Nepal as Nepalis have a large stock of Indian notes of Rs500 and Rs1,000 denominations. Finance Minister Krishna Bahadur Mahara had also made a similar request to his Indian counterpart Arun Jaitly.

According to NRB, Nepal’s financial system holds IRs33.6 million in denominations of Rs500 and Rs1,000. The total includes cash kept in the vaults of banks, financial institutions and the central bank. However, the actual amount of these banned Indian banknotes in Nepal is expected to be much higher as Nepalis were previously allowed to carry cash worth up to IRs25,000.

Also, hundreds of thousands of Nepalis who work as daily-wage labourers in India, patients seeking medical treatment and border residents who customarily buy daily essentials across the border are said to be holding large amounts of the scrapped Indian banknotes. The Indian government has said people who have accounts with Indian banks need not worry as they will provide them currency exchange facilities. But many Nepalis who possess the banned paper money do not have accounts with Indian banks.

The Indian government has set a deadline of December 30 to deposit the scrapped notes in banks.