Indian Rupee stock at critical level
With INR 100 notes now running out of stock, the impacts of demonetization are likely to become more glaring than expected
The central bank’s Indian Rupee Currency (INR) stock could be depleted within a day or two, with the reserve of INR 100 notes and lower denominations reaching critical level.
As of November 23, the Royal Monetary Authority’s (RMA) stock of INR 100 and lower denominations had reached an all time low of 18.87mn. About INR 5mn are transacted every day, that is despite lowering the withdrawal limit from INR 10,000 a person per month to INR 5,000.
“Looking at the INR stock that we have, it may just last for one to two days,” said the Deputy Governor of RMA, Phajo Dorjee. “One of the major concerns right now is that the stock
could finish up before we receive fresh supply as we are dependent on the Reserve Bank of India (RBI).”
The RMA and the government are in touch with counterparts in India to procure fresh INR stocks.
Economic Affairs Minister Lekey Dorji told this paper that RMA is constantly following up with the RBI on replenishing INR 100 denominated banknotes to meet the domestic requirement. “RMA has requested the RBI to allow new INR 500 and INR 2000 banknotes to be used in Bhutan,” said Lyonpo. (Read full interview with Lyonpo on page 5)
However, the central bank is yet to hear from the Indian government.
According to the Director of Foreign Exchange and Reserve Management Department of RMA, Dechen Pelzom, the stock of demonetized notes amounts to INR 2.3bn as of November 22, of which INR 1.5bn was collected from the public while INR 0.8bn was RMA’s stock, lifted from the State Bank of India (SBI).
As of November 17, Tashi Bank alone recorded INR 37.67mn rupee transaction. The highest INR deposit made with the bank in one day was INR 10.95mn.
Druk Punjab National Bank transacted INR 122.7mn as of November 17. On an average, a total of INR 20.45mn deposits were made every day. The highest amount of single deposit made with the bank was around INR 2mn.
Although RMA Governor, Dasho Penjore, earlier said that the temporary glitch caused by the INR demonetization would not affect the economy and trade in any way, with INR 100 notes now running out of stock, the impacts of demonetization are likely to become more glaring than expected.
Small traders dealing in cash with India is likely to be hampered due to demonetization and RMA could face difficulty in managing INR in cash if RBI and SBI delay the process of replenishment, according to the Economic Affairs Minister.
Potato traders have already been hit by the demonetization of INR 500 and 1000 notes, with prices plunging due to limited cash in circulation. (Read story in page 4)
An Economics Professor at Royal Thimphu College, Mr. Sanjeev Mehta, said some of the possible impacts of demonetization will be the reduction in volume of informal trade in the border areas, which is very large, rise in inflation rate, reduction in the volume of Indian tourists and slowdown in the hospitality industry in Bhutan.
“Bhutanese visiting India for availing health, education and religious services will also see a decline and the shortage of Indian currency will also adversely affect the construction industry,” he said. “If tourism and construction sectors are adversely affected, the Gross Domestic Product rate will experience a downturn.”
Mr. Sanjeev Mehta said that there is very limited scope for policy intervention for Bhutan to tackle this situation. “Bhutan will have to bear the fallout,” he said, adding that RMA will cap the withdrawal of Indian currency to optimize its use.
Although RMA has been requesting the public to postpone their travels to India unless it is absolutely necessary, many pilgrims have already planned their trip.
The owner of Bhutan Merit Travels, Tshering Pelmo, who is organizing a tour program to Bodhgaya and Rewalsar (Tsho Pema) in India, have already received 42 confirmations.
The travel agent is still waiting for a few more people to confirm for the trip. “We are worried that we might face problems once we are India but I am trying to find some measures with the RMA and the banks before leaving,” she said.
Potato traders and farmers have been hit by the demonetization move, as prices plunge due to limited INR available in the economy.