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Demonetisation Effect on Neighboring Economies

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Nepal – Most affected

  1. Transacts daily with India in INR for its necessary supplies, and shortage of new currency has caused shortage of essential commodities and affected Indo-Nepal trade
  2. Also needs INR for international exchange to other currencies, but have banned all financial transactions in Indian rupees and termed new notes as “unauthorised and illegal”
  3. Lack of reliable information -> Nepal Govt. is not sure of the amount of INR currency its citizens hold (esp. in informal networks) and to exchange them would be an ardent task in short term (As per Nepali Rashtra Bank ~ INR 35 mn in 500 and 1000 rupee notes are present within its formal financial network)
  4. Security concerns -> RBI reluctant to freely provide currency due to possibility of their unscrupulous usage (terrorism – used by ISI, black money generation)

Bhutan – Not much affected

  1. Bhutanese currency is pegged with Indian currency at 1:1, and Indian currency is legally tradable in Bhutan, and Bhutanese Central Bank offers currency at least hassle without much hoarding (also better synergy with RBI, Govt.), still short term shortage would occur
  2. Decrease in number of religious travelers to India to visit Bodh Gaya and monasteries, also also loss of revenue from tourism to Bhutan Govt. due to less inflow of Indian travelers

Trouble for Bangladesh. Sri Lanka and Myanmar

  1. .Allows use of rupee as a parallel currency because of their trust in India’s financial robustness and policy stability, but this move has rattled them
  2. Would affect small and marginal traders (border haats) along the borders the most who generally deals in INR Cash
  3. Bangladeshis, SL visiting India for medical purposes are facing major problems to arrange INR funds, and are stuck with high denomination older notes
  4. But, would hit the extremists badly esp. in Myanmar as the currency they have hoarded has become just a piece of paper

Pakistan – Blow to its Na-pak iraade

– Reduced smuggling of goods/weapons and terrorist activity in Kashmir region owing to non-availability of new currency to fund their heinous motives and also made the fake-note printing press maintained by ISI worthless

A marginal currency appreciation owing to weeding out of black money, fake money out of formal system to some extent would further increase the cost of imported goods from India. Also it would lead a push towards gold in these economies (safe-haven)

In short term, demonetization would definitely affect the broader economy of nieghbourhood nations to some extent, and the move is also seen as against the principles of ‘Neighbourhood First’ policy. Also, Govt. in these nations would now would be cautious regarding freely trading in INR, and instead may push for use of their own currencies

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Demonetisation effect on neighboring economies. (2019, March 27). GradesFixer. Retrieved November 30, 2021, from
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