Fear of black Indian rupee entering Bhutan looms large

With a sudden demonetization drive in India, fears of black money entering into Bhutan looms large, with concerns about its impact on Bhutan's export market.

During a sudden checkup along Phuentsholing, a business hub bordering India, and Thimphu National Highway, police have caught a local taxi carrying Rs 700,000, all in Rs 1,000 being demonetized.

The taxi was traveling from Bhutan-India border town of Phuentsholing to the capital Thimphu. The money was found stealthily hidden in a black plastic under passenger's seat.

Since India is Bhutan's largest export and import market, the demonetization in India has also affected the sale of Bhutan's cash crops like potatoes and oranges, upsetting local farmers.

Indian rupees are very prevalent in Bhutan due to trade and hydropower projects, which are mostly joint venture of India and Bhutan.

The central bank of Bhutan had held close discussion with the Reserve Bank of India following Indian prime minister's announcement of demonetization. The central bank of Bhutan announced a short period for depositing the old notes into bank accounts.

According to Royal Monetary Authority (RMA) of Bhutan, Indian Rupee account for 30 percent of Bhutan's international exchange reserves amounting to about Indian Rupee 27 billion (390 million U.S. dollars).

Starting Nov. 9, the RMA allowed withdrawal and exchange of Rs 10,000 per month. But the withdrawal was reduced to Rs 5,000 per person since Nov. 23.

Both the government and central bank has been cautioning people to refrain from any such activities and not to get involved in rupee transaction for others. Since the demonetization in India on Nov. 8, the central bank in Bhutan has collected around 1.2 billion in Rs 500 and 1,000 notes. Endit