Indian Finance Minister Arun Jaitley has said that demonetized IRs500 and IRs1,000 banknotes held by Nepalis will be exchanged once proper arrangements have been put in place to ensure that black money and counterfeit currency do not enter the Indian financial system.

“The banned currencies will be exchanged, but precaution needs to be taken to ensure that genuine transactions take place,” said the Indian finance minister who arrived in Nepal on Thursday to take part in the Investment Summit. “Nepal Rastra Bank (NRB) and the Reserve Bank of India (RBI) are already in dialogue. I’m sure they will come out with a scheme.”

His comments come a few days after two RBI officials visited Kathmandu to take stock of the preparations made by Nepal to provide currency exchange facility to Nepalis holding the banned Indian banknotes.

It is not yet known whether the RBI officials have submitted their report to the Indian Finance Ministry. “I’ve not seen any report yet. I’ll go back and check it out,” said Jaitley before leaving on Friday. He said that the issue of currency exchange “was being handled by the Indian central bank autonomously”.

Jaitley added, “I’m sure the RBI officials will make proper arrangements with NRB.” He also met with NRB Governor Chiranjibi Nepal during his short stay in Kathmandu.

Indian authorities have long expressed worry about Nepal being used as ‘a clearing house’ to channel illegally amassed banned notes into India’s financial system. Because of this concern, the RBI has sought a detailed plan from Nepal on ways to curb inflow of black money from India once the exchange facility is extended to Nepalis here.

“The RBI officials asked if Nepali banks could identify Indian nationals having bank accounts here,” said Bhisma Raj Dhungana, head of NRB’s Foreign Exchange Management Department. “We told them about the mandatory provision under which a copy of the citizenship certificate must be submitted by every customer to open an account in banks and financial institutions in Nepal.”

The Indian side has not responded so far.

Last November, the Indian government in a sudden move pulled IRs500 and IRs1,000 bills out of circulation in a bid “to unearth unaccounted wealth and fight corruption”.

But this drive was not successful, as Indian banks had received IRs14.97 trillion as of December 30, the deadline for handing in old notes, according to Bloomberg.

“The government had initially estimated about IRs5 trillion of the IRs15.4 trillion rendered worthless to remain undeclared as it may have escaped the tax net illegally, known locally as black money.”

The Indian government’s move has also caused inconvenience to many Nepalis, especially those who earn a living by working as daily wage labourers in India, visit the neighbouring country for medical treatment or rely on Indian markets to buy daily essentials.

NRB has said that Nepal’s financial system possesses IRs33.6 million in IRs500 and IRs1,000 notes. This figure includes cash parked in the vaults of banks, financial institutions and NRB.

However, the actual stock of banned Indian banknotes is expected to be much higher because Nepalis were previously allowed to carry large denomination bills worth up to IRs25,000. Also, residents in border areas usually keep large amounts of cash as they have to hop across to India to do their shopping.