Overflowing with foreign currency, Nepal's central bank loosens exchange regulations

Since the central bank's reserves are at an all-time high and are flooded with foreign currencies, Nepal has loosened the restrictions on foreign exchange for its citizens who travel, trade, or have dollar accounts.

In mid-June, the eleventh month of the previous fiscal year, the nation's foreign exchange reserves stood at Rs1.96 trillion. The value of the Nepal Rastra Bank's own shares is Rs 1.75 trillion.

On Thursday, the central bank announced that it had modified the unified directions to let Nepali nationals to go overseas with up to $2,500 each trip. Prior until now, $2,500 was granted to inhabitants of Nepal twice a year.

We placed restrictions on foreign exchange facilities two years ago because the nation's foreign exchange reserves were running low. As resources have improved, we have now modified the uniform guidelines and eliminated the frequency limit. The central bank's spokeswoman, Ramu Paudel, stated that it will be useful for frequent travelers.

The maximum quantity of available cash, however, is still the same.

The central bank's recently stated monetary policy for the current fiscal year serves as the foundation for the adjustments.

In a same vein, Nepali nationals visiting Tibet, China, and the SAARC nations now have twice as much foreign currency available to them thanks to the central bank.

Citizens of Nepal who travel to Tibet on land are now eligible for a $1,000 one-time exchange and a $2,000 fiscal year exchange. This will also apply to Nepalis via surface routes to visit the SAARC nations, with the exception of India.

However, people who frequently visit to Tibet who live in border districts will not be covered by this provision.

The nation's foreign exchange reserves have been breaking records in recent months, mostly as a result of strong remittance growth and an increase in the number of people leaving the country for other countries in quest of higher wages.

Strong foreign exchange reserves, according to economists, point to a situation with little investment, especially in a least developed nation like Nepal.

Nepal's foreign exchange reserves dropped to a critical point in June 2022, short of less than six months' worth of imports. Not even the import restrictions imposed by the central bank helped.

Instead, the International Monetary Fund claimed that the actions almost choked off Nepal's economy.

In the wake of the Russia-Ukraine war, which constricted the world supply chain and sent prices skyrocketing, Nepal also had persistent current account deficits, grew more susceptible to external economic shocks, and saw its foreign exchange reserves rapidly deplete.

To prevent the nation's foreign exchange reserves from further declining, the government prohibited the import of at least ten items deemed non-essential or luxurious in late April 2022. The prohibition ended in December 2022.

According to Paudel, the increased foreign exchange ceiling was put in place to avoid problems for traders and travelers alike, in addition to the bettering FX reserve situation.

He noted that people who travel a lot were having trouble presenting the necessary paperwork to the central bank because of the restricted convertibility of foreign exchange. "These travelers will benefit from the amended provision."

Furthermore, the foreign exchange restriction for dealers has been modified by the central bank.

The modified clause allows traders who import products using telegraphic transfer and demand draft to import up to $100,000 worth of goods at once, instead of the previous $60,000.

According to Paudel, traders who order more items than allowed must provide the central bank with supporting documentation.

However, the modification allows them to get the facilities they require from any commercial bank.

The payment threshold to import silver has been raised under the amended provision.

Gold and silver importers who use the metal to make jewelry, art supplies, and kitchenware can receive a $300,000 foreign exchange credit for each import. Another foreign currency facility of $100,000 per import is available to other bullion traders that import silver.

The foreign exchange cap has been raised from $15,000 to $25,000 per month for businesses that outsource services to other nations and for domestic enterprises and their sister concerns that import invisible goods.