Nepal currency rates1/28/2024 This led to a higher demand for the Indian Currency within Nepal, resulting in the appreciation of the Indian Currency. The Indian Currency was largely utilized to pay revenue to the government. The dual currency system led to a partial IC-ization during 1932-1960 in Nepal. History of dual currency in Nepal (from 1932-1955) The turmoil within Nepal during 1946-1955 led to a rise in the value of the Indian Currency, which further brought volatility in the exchange rate between the two countries.įigure 1. In the period between 1939-1946, various events led to an increase in the supply of the Indian Currency, however the decrease in the demand of INR, depreciated the value of the currency. Since the dual currency system rate was determined based on the demand and supply of each currency, an increase in the value of Indian Currency meant depreciation of the value of Nepali Currency. The surge in the import, especially from India during 1932-1939 led to a rise in the demand for the Indian Currency. The period between 1932-1955 faced most fluctuations, as illustrated in the graphic below. Since 1877, the dual exchange rate had been stable as the volume of import from India was limited to necessary goods like raw cotton, kerosene, textiles, salt, medicines etc. The dual currency exchange rate had been in existence for a very long period in Nepal. In Nepal, both Indian Currency and Nepali Currency were legal tenders at some point and under the dual currency system the exchange rate was fixed on the basis of demand and supply by the private money changer. Significant trade and investment linkages with India led to the dominance of the Indian Currency (IC), especially in the Terai region, while the circulation of Nepali currency was limited to the Kathmandu valley and the hilly region. The geographical characteristic of the country has resulted in a mutual relationship between Nepal and India, with shared cultural heritage and close economic relationship that dates to thousands of years. The north outlined with the restrictive Himalayan ranges, whereas the south is surrounded by an open plain terrain stretching across east to west causing greater Indian influence compared to Chinese influence. Nepal is located between the two countries, India and China. With increasing globalization and global trade, a convenient exchange rate policy is needed to allow countries to convert their currency to another currency to conduct smooth international trade. The exchange rate system is a critical macroeconomic policy issue, especially for small open economies like Nepal. The exchange rate system, also known as the current system, establishes the value of a nation’s currency against the currency of another nation.
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