The Bhutanese Leading the way.
Last Friday, on 19th May the Reserve Bank of India (RBI) notified the public that it will be withdrawing its INR 2000 notes from circulation as the notes have reached its estimated life span even though it remains as a legal tender. The RBI stated that it will be accepting exchange of the notes till 30th September 2023 for Indians.
However, those Bhutanese who accepted it from Indian tourists may suffer losses with no exchange facilities in Bhutan.
Although INR 2000 notes are not accepted in Bhutan, local businessmen and retailers have accepted these notes from Indian tourists for their convenience.
The Chairman of the Guide Association of Bhutan, Garab Dorji shared that INR 2000 despite not being a valid currency in the country is in circulation in the market as many guides saw Indian tourists using it in Bhutan to make payments. “INR 2000 notes are convenient to carry for the Indian tourists and the guides shared that Indians used it to shop around the local areas in Bhutan.”
It seems that the INR 2000 was accepted without knowledge by shopkeepers and local retailers. After the notification of 19 May of the withdrawal of INR 2000, some of the local business people still accepted it without knowing that it is being withdrawn in India.
A woman who runs a store in the local handicraft market had accepted the INR 2000 and similarly, a few more handicraft shops accepted it even after the notification. Before the notification, the INR 2000 note was widely accepted by the locals here.
Several hotels in Phuentsholing area, had been accepting the INR 2,000 notes from Indian tourists.
Aside from businessmen, local residents especially in the border areas also seem to have the notes in their possession as it makes shopping in the Indian towns nearby easier.
A store owner shares that he accepted the INR as getting INR from Royal Monetary Authority (RMA) is hard. These reasons have probably led to people accepting INR 2000 and INRs in general.
However, INR 2,000 is officially not allowed in Bhutan due to a RBI circular.
An official from RMA, shared that there is nothing RMA can do. “The circular is from RBI and we won’t be able to do anything. It will be an individual level loss and we will not be able to facilitate an exchange as its Indian policy, and nothing can be done by RMA.”
The INR 2000 note was first introduced in 2016 to primarily to meet the currency requirement after the demonetization of INR 500 and 1000 notes.
According to the Economic Times, an Indian newspaper, the withdrawal has launched a gold rush, cash transactions in petrol pumps have sharply risen with people using INR 2000 notes and purchases and delivery are all paid in INR 2000 notes.
As such practices are happening in India, it seems some of these practices has also entered Bhutan. Some people have seen Indian tourists using INR 2000 in Bhutan for payment in the country.
If these practices continue then Bhutanese people will suffer more losses.
In Jaigaon normally those engaged in the IC/BC trade which is informal exchange of the two currencies these days charge 4 percent for buying INR from them or on the other hand Bhutanese taking Ngultrum to shop have to pay around 4 percent to even 7 percent extra.
However, Bhutanese who are trying to get rid of the INR 2,000 notes are not getting any commission for it. The same IC/BC traders can goto a bank and get INR 500 and 100 notes by giving the INR 2000 notes. This cheating of Bhutanese will impact trust in border areas.
The demonetization of 2016 now followed by the withdrawal of 2023 will also deeply impact the confidence that Bhutanese have in high value Indian currencies.
The INR 2,000 notes left behind by Indian tourists will leave a bitter taste in the mouths of the Bhutanese businesses who accepted them and especially for those who cannot exchange them.
The RBI has come under criticism in India for the way it has announced the withdrawal which will hurt the credibility of the Indian currency in the long run.
The RBI move has also come under fire in India as it coincides just before major state elections this year and the general election next year and is being seen as a political ploy to make funding tough for opposition parties.
The 2016 demonetization deeply impacted the Indian economy. Many segments of the Indian economy are still heavily reliant on cash and this latest move will hit them too.
