The central bank has continued to give further relaxation on foreign exchange management in line with this year’s monetary policy.
The Foreign Exchange Management Department of the Nepal Rastra Bank (NRB) on Friday issued a circular, allowing money exchangers (licensed by the NRB) to provide exchange facility worth US $500 to Nepali citizens even if they do not have the source of the dollar (or other convertible currency).
“Money changers licensed by the NRB can provide domestic currency in exchange for US Dollar or other convertible currency if demanded by Nepali citizens,” the circular says. “The maximum limit for such an exchange is $500 per transaction and money exchangers should collect the record of the beneficiaries.”
“Even ordinary Nepali citizens like those who work in the hospitality and tourism industry as well as friends and relatives of migrant workers possess foreign currency in the form of tips or gift,” said Lila Prakash Sitaula, the executive director of the NRB. “We have to bring such currencies into the formal financial sector.”
NRB awarded this facility to banks and financial institutions (BFIs) last year with a maximum limit of $1,000, but was reluctant to give the facility to money exchangers although they were pressing for it. “We did not allow money changers then because we wanted to test its effect first through formal financial channels,” said Sitaula. “Finally we have allowed them the facility. But we will be vigilant to check possible misappropriation.” He added that if the money exchangers comply with the documentation properly “we will increase their exchange limit to $1,000 like in the case of other BFIs.”
The NRB directive comes at a time when there is a shortage of dollar in the market. Bankers said the move will further fuel the shortage. “There is no guarantee that money collected by the money exchanger will get back into the formal channel,” said a banker. “Since there is an acute shortage of US Dollar in the market, money exchangers will sell it in the informal market which offers a higher rate.”
Some other bankers said there is a high chance that collection will be used to finance illegal import from China. “NRB should rethink this decision,” said a banker. “This is not the right time to relax the foreign exchange facility.”