Nepal's Council of Ministers has taken a significant step by lifting the nearly decade-long ban on high-denomination Indian currency notes of ₹200 and ₹500. This decision, announced on 15 December 2025, marks a reversal of restrictions imposed following India's demonetisation drive in November 2016. 

Government spokesperson and Minister for Information Technology and Communication, Jagdish Kharel, confirmed the move to ANI after a Cabinet meeting held on Monday.

The new policy permits the import and export of these notes between India and Nepal, but with a strict cap of ₹25,000 per person. Nepalese or Indian citizens may now carry up to this amount from India into Nepal or vice versa.

Notes issued after 9 November 2016—the cut-off date for India's demonetisation—can enter circulation, easing long-standing limitations on cross-border transactions.

India's 2016 demonetisation abruptly invalidated high-value notes of ₹500 and ₹1,000 to combat black money, counterfeiting, and corruption. This created immediate challenges for Nepal, where Indian rupees function as a parallel currency, especially in border regions and for everyday trade. Nepal swiftly imposed its own ban on importing and exporting these notes, restricting circulation to denominations of ₹100 or below to align with India's measures.

At the time, approximately ₹50 million in demonetised Indian notes circulated within Nepal's banking system. These funds remain unexchanged, locked in limbo due to the restrictions. The ban disrupted informal economies reliant on Indian currency, given Nepal's heavy dependence on trade with its southern neighbour.

The Reserve Bank of India (RBI) later amended the Foreign Exchange Management (Current Account Transactions) Rules, 2000, and related regulations under the Foreign Exchange Management Act (FEMA), 1999.

These changes allowed the import and export of high-denomination notes specifically between India and Nepal, recognising the unique open-border dynamic. Nepal's decision follows suit, prompted by India's eased stance.

This open border, enshrined in the 1950 Indo-Nepal Treaty of Peace and Friendship, facilitates free movement of people and goods without visas or passports. Indian rupees remain legal tender in Nepal alongside Nepalese rupees, particularly in the Terai region bordering India.

Nepal's trade with India accounts for over 60% of its total external commerce, making currency fluidity essential for cross-border commerce in commodities like petroleum, machinery, and consumer goods.

The lifting of the ban addresses practical realities for millions of Nepalese who travel to India for work, medical treatment, or pilgrimage. Remittances in cash form a vital lifeline, and the ₹25,000 limit strikes a balance between liberalisation and regulatory control. It prevents potential misuse while accommodating legitimate needs.

From Nepal's perspective, the policy change reduces friction in bilateral trade, which totalled over NPR 1.3 trillion (approximately USD 9.7 billion) in the fiscal year 2024-25. Indian exports dominate, including essentials like fuel and fertilisers, often settled in rupees. Restoring high-denomination notes streamlines these flows, potentially lowering transaction costs for small traders and informal vendors.

However, challenges persist. The unexchanged ₹50 million in banks raises questions about redemption processes. Nepal Rastra Bank, the central bank, must clarify guidelines for exchanging pre-2016 notes or integrating post-2016 ones into the formal economy. Coordination with RBI will be crucial to avoid discrepancies.

Broader economic implications could emerge. With inflation pressures and a narrowing trade deficit, Nepal benefits from frictionless rupee circulation. Yet, authorities must monitor for illicit flows, such as money laundering, given the porous border. The cap of ₹25,000 per person serves as a safeguard, aligning with FEMA provisions.

This development underscores the intertwined financial ecosystems of India and Nepal. It reflects pragmatic policymaking amid evolving regional dynamics, including China's growing influence in Nepal. By harmonising currency rules, both nations reinforce economic interdependence.

Looking ahead, the policy may pave the way for digital payment integration across the border, building on UPI pilots already underway. For now, it resolves a lingering relic of 2016, fostering smoother people-to-people and trade ties. Implementation details from Nepal Rastra Bank will determine its full impact in the coming weeks.

Based On ANI Report