bt August 19, 2007- Phuentsholing: What seemingly appears to be a shortage of Indian currency (IC) in the local market, has severed business transactions in Phuentsholing.
The sprouting of unofficial foreign exchange counters and exchange markets across the border following the event has created inequitable exchange of rupee vis-à-vis the Bhutanese ngultrum.
The recent announcement by the Reserve Bank of India stating that the ngultrum is like any other foreign currency and cannot be used as a medium of payment even in the border towns of India where ngultrum is accepted, seems to have added salt to water.
While the Bhutanese ngultrum pegged at par with the rupee is not a legal tender (not accepted by law) in India the rupee is a subsidiary currency (not circulated as much as ngultrum) in Bhutan.
A businessman based in Phuentsholing said that it is an arduous task amid rupee crisis, when payments for laborers and parties had to be made in IC as they do not accept the Bhutanese Currency (BC).
“Besides, we are also in a dire need of IC when pursuing business trips and personal tours to India. The problem is further aggravated these days with places like Alipur, Birpara and Jalpaiguri not accepting the BC,” he said.
The two corporate banks, Bank of Bhutan and Bhutan National Bank, in Phuentsholing also are swooning from the weight of the dearth of rupee reserve.
“There has been a severe IC crisis in the past two to three years. A few projects in Bhutan with IC income, deposit the amount to the bank. But more than the deposit, the withdrawal of IC has been significantly higher. There is a liquidity of shortages,” said an official from the BNB branch office in Phuentsholing.
The head office of BoB in Phuentsholing maintained that they cannot comment on the issue.
Observers however, point out that with the banks not issuing IC, the only option is to procure the money from the various exchange counters in the market.
Another Phuentsholing businessman told BT that the banks issue only about rupee 20,000, when clients ask to exchange for about Nu 100,000.
Having a good rapport with the banking employees helps to obtain IC easily, said a corporate employee requesting anonymity.
“A friend of mine requested me to get his amount exchanged in IC, after his request was turned down. Since I knew someone at the bank, I easily got it for him,” he said.
“Our last option is to acquire IC from the exchange market in Jaigaon. It is easily available if one is ready to pay the rate of exchange,” said Dorji (name withheld), a Phuentsholing businessman. “The rate fluctuates according to the availability of the IC in the market. And for every thousand IC, you only have to pay an extra ten ngultrum. There is no alternative but to pay the quoted price.”
According to a Jaigaon businessman about 10-12 hundred thousands of exchange transactions take place in Jaigaon among traders from Siliguri, Jaigoan and nearby areas.
“One usually needs to pay Nu 70 to 80 more for every 10,000 rupees exchanged. And during government holidays and when banks in Phuentsholing are closed, the exchange rates shoot up,” he said. “The trade initially started three or four years back but it was not huge like now.”
A few quarters also pointed out that despite the value of the Indian rupee and the Bhutanese ngultrum being at par, such trends would create unfavorable balance of payment.
This would result in a certain extra amount of the ngultrum flowing out of the economy, devaluing the ngultrum, thereby giving rise to more flow of capital outside.
“Even a few panshops in Phuentsholing are involved in the trade. They take three percent of every 10,000 rupees,” a businessman said, adding that he often frequented the place when he was in need of the IC.
In Contradiction, the managing director of the Royal Monetary Authority, Daw Tenzin, said that there is no shortage of rupee in the market.
He said that both the banks in Phuentsholing have rupee reserve and even if they fall short, RMA instantly releases the rupees upon the banks’ request.
According to the standard banking practice, all the banks around the world have a cash withdrawal caps (celing), he added. “We don’t allow the withdrawal of cash beyond Nu 40,000 in Bhutan.”
The main purpose of the ceiling, according to the managing director, is for the safety of the customers. “People carrying a huge amount are always a target of robbery,” he said. “But we also want to encourage banking transactions in Bhutan.”