India’s central bank-Reserve Bank of India-has “agreed” to allow travellers to carry 200 and 500-rupee Indian currency notes in Nepal but at the same time, restricted them from taking the notes to India.

Bhisma Raj Dhungana, executive director of the Foreign Currency Exchange Department of Nepal Rastra Bank, confirmed the development. He said the condition for one-way transaction could create problems when exchanging currencies, and informed that they were in talks to request the Indian central bank to simplify the process.

Dhungana said that they have also asked India’s central bank to allow the use of the 2000 denomination note in Nepal, but the latter refused. Dhungana did not reveal details, but some officials said that the ban may be lifted soon.

On January 20, the Nepal Rastra Bank issued a circular prohibiting Nepali travellers, banks and financial institutions from holding or carrying and trading Indian bank notes higher than 100 rupees.

The central bank had said in its circular letter that Indian denominations of 200, 500 and 2,000 cannot be carried and used for trading.

Under the new regulation, Nepali citizens cannot carry these denominations to countries other than India. Similarly, Nepalis are also not allowed to bring such notes from other countries. Indian notes of 100 or below, however, are allowed for trading and conversion.

Following the ban, traders and locals in markets located along the Nepal-India border had criticised the government’s decision to prohibit the use of 200-, 500- and 2,000-rupee Indian currency notes in the country. They said that the ban would have a negative impact on the exchange of goods and services between the two neighbouring countries. Almost all market towns located along the border have been using Indian currency for payment.

The decision was also a big setback particularly for cash-driven industries like tourism at a time when Nepal had announced the Visit Nepal 2020 campaign, with an objective to bring 2 million tourists, majority of them from India.

Travel trade entrepreneurs had said that since India is the biggest tourism source market for Nepal, its impact would be huge. As middle-class Indians are the key visitors to Nepal, traditionally they don’t carry plastic money and prefer visiting Nepal with a pocketful of cash. According to Indian media reports, the advantage of travelling to Nepal was that one did not need to change the currency.

According to Dhungana, if the 200 and 500-rupee Indian currency are opened, it would facilitate import-export between the two neighbours.

The Indian government, in a surprise move on November 8, 2016, pulled INR500 and INR1,000 out of circulation “to unearth unaccounted wealth and fight corruption”. Since then, the Nepal Rastra Bank have also banned those notes in Nepal.

Before that, the Nepali central bank had allowed Nepalis to carry Indian banknotes of 500 and 1,000 denominations based on the Indian government’s decision.

The Reserve Bank of India, in February 2015, introduced the Foreign Exchange Management (export and import of currency) Regulations, allowing Nepali and Bhutanese citizens to “carry Reserve Bank of India currency notes of denomination INR500 and/or INR1,000 up to a limit of INR25,000”.