In early 2021 all the Australian banks informed their Bhutanese counterpart banks that they could no longer be the Correspondent Banks for the Bhutanese banks.
A banker on the condition of anonymity said that the Australian banks found that the business generated by the Bhutanese banks was too small and so it was not worth their administrative expenses.
This meant that Australian banks could no longer directly send money to Bhutanese banks. The impact was immediate as it then became not only more cumbersome but also more expensive to send money to Bhutan.
Now Bhutanese in Australia had two options. The first option was to send money from the Australian banks to a Bhutanese bank’s correspondent international bank in either Singapore or USA. This would be more expensive as apart from the higher banking charges the AUD would be converted into USD and then sent to Bhutan where it could be converted back into Ngultrum and so Bhutanese sending money from Australia would lose out on the exchange rate.
Another problem with this according to a local banker is that sometimes the correspondent bank in Singapore or the USA to save money will not put in the full details of the recipient and the banks in Bhutan have to follow up and find out.
The second option was offered by T- Bank which worked with a local Money Transfer Operator (MTO) who would get the money transferred to Bhutan using Australian banks. This would include some charges and have a monthly limit of AUD 20,000 but was taken up by many Bhutanese as it was easy.
It entailed downloading an app, entering one’s details and then using it to transfer money.
T-Bank has a total of AUD 12 charge per AUD 20,000 sent but it has been giving a 50 percent discount at AUD 6 per AUD 20,000 sent every month.
Bank of Bhutan has also come up with a similar scheme now.
The Royal Bhutanese Embassy in Canberra through Ambassador Sonam Tobgay in consultation with the Royal Monetary Authority (RMA) has been approaching banks in Australia to re-establish the Correspondent Bank relationship to make it easier and cheaper for Bhutanese to send money.
Ambassador Sonam Tobgay said they officially do not know the reason why the correspondent bank relationship was discontinued though it was said that it is a business decision. He said the embassy is reaching out to the four big banks of Australia to restore this so that remittances can be sent directly and to avoid a circuitous route and additional charges.
A senior RMA official said that the Central Bank was not involved in what happened in early 2021 or before that, but now RMA is involved and through the Embassy in Australia is working to establish correspondent bank ties.
The strategy is to first get the Australian banks on board and then approach the Reserve Bank of Australia which is the Central Bank.
The official said as a responsible institution RMA will work to provide Bhutanese in Australia with an efficient platform to send money and for their relatives to receive it in Bhutan.
He said that RMA will want to provide all the regulatory and technical support for this.
This moves makes sense for RMA especially in the backdrop of falling foreign currency reserves. To encourage Bhutanese in Australia to send money, RMA, from June 2021 to May 2022, offered a 1 percent incentive. This meant that if a Bhutanese sent 100 AUD then he or she would get back an additional 1 AUD worth of Ngultrum in the account.
Given the success of this and the increasing need for foreign currency the RMA from 1st July 2022 increased this to 2 percent.
Given the high amount of AUD remittance to Bhutan the RMA has opened an account with the Reserve Bank of Australia where the bulk of the AUD is kept similar to how the bulk of the USD is kept in a Federal Reserve account in USA.