Technical Terms

Rupee is a currency unit that is used as a medium of exchange mostly in the counties in Asian continent. A Sanskrit word “rupyakam” that means silver coins is said to have been the source of origin of the word rupee. In the country Nepal, rupee is known as Nepalese rupee and forms the national currency unit. The currency is commonly abbreviated with “Rs” or “₨” signs and is subdivided by the unit “paisa” also called “pice”. Rupee had been the official currency of Nepal since 1932 when it replaced “silver mohur” and maintains a fixed peg to the Indian currency, Indian rupee @ 1 INR = 1.6 Nepalese rupees. The International Organization for Standardization assigns currency codes and numeric codes for each and every currency of the world and the Nepalese rupee has been designated with these codes as NPR and 524 respectively.

Overview

Nepal is very much an agrarian economy that still has to go a long way to be called as a developed nation. There are several reasons for Nepal to be counted among the poor countries of the world, few of them being its lanlocked location and vast mountainous terrain that make the development of infrastructure difficult and expensive, lack of technological advancement and long in existence civil war that pulls the growth of the economy backwards. The country has been receiving foreign aids in large amounts and that is helping the country to function. Though, in the recent years, the trade balance of Nepal has somewhat improved due to a better export performance and strengthening tourism sector. The country has higher international money reserves than before and looks in a better condition inspite of the hinderances in the way of economic growth but the future is still uncertain under the increasing foreign debt.

Nepalese rupee is pegged to the Indian rupee since it had been incepted. Its value hovers around the exchange rate 1 Indian rupee = 1.6 Nepalese rupee. There has been no signs yet to float the Nepalese currency in the world market and discontinue the peg made to the Indian rupee. The restrictions regarding the import and export of local currency suggest that the local currency can only be imported by Indian or Nepalese nationals and can only be exported by the Indian nationals travelling to India. there is no restriction on the import of foreign provided all the amounts exceeding US$ 2000 must be declared. The export of foreign currency can only be done up till the amount imported.

The land of Nepal remained deprived of its own currency untill as late as the 6th century when the first ever coins in Nepal got minted using copper courtesy the Licchavi kingdom that had Indian religious designs on them. Prior to that, coins issued by Indian kingdoms such as Maurayas, Guptas etc were in circulation in Nepal. With the change of kingdoms ruling over Nepal, different coins were minted infrequently till the 15th century when Nepal got divided into three powerful states named Kathmandu, Patan and Bhatgaon, after a short lived unified rule. The three kingdoms started minting silver coins called silver tankas in large quantities and the coins were differentiated according to their designs, Patan coins bore a star, Kathmandu coins had wavy lines and Bhatgaon coins had a triangle. The quantity in which the silver coins were minted was large enough that enabled nepal to export these coins to Tibet. Also, gold mohurs were issued for transactions and even one of the the smallest gold coins ever used in the histrory of currencies got minted in Nepal weighing just 0.002 grams.

The three kingdoms were unified to form the Kingdom of Nepal with the help of the efforts of Gorkha ruler, Prithvi Narayan Shah in 1768. In the 19th century, gold mohur and silver dabals were issued as the currency but with time, the Indian currency also started circulating in the country due to insufficient coinage. The currency carried subdivision rate at 30 silver mohurs equal to 1 gold mohur equal to 1500 paisa. Also the Indian rupee and silver mohur maintained the same value and weight. In 1923, Nepal was recognized as an independent country by the United Kingdom and in 1932, a new currency was launched in place of mohurs and paisa that was Nepali rupee. The Nepali rupee had a slightly lower value than the Indian rupee due to lesser silver content and traded at a rate 1 Indian rupee = 1.28 Nepali rupee. In 1951, banknotes with Nepalese rupee denomination were issued for the first time. Initially, the government of Nepal was engaged in issuing the currency of the country this function of the government was taken over by the Nepal Rastra Bank after it got established in 1956. the Indian rupee which was still in circulation in the country was restricted to be the legal tender since 1966.

The volatility in the foreign exchange rates depends upon a numerous macro economic factors that have different degrees of importance to different economies of the world. Some special and exceptional factors affecting the rates may also exist in the case of different countries. Following are shown the common factors on which the foreign exchange rate depends

• Flow of imports and exports between the countries
• Flow of capital between the countries
• Relative inflation rates
• Fluctuation limits on exchange rate imposed by the governments of the countries
• Merchandise trade balance
• Rate of inflation in the country
• Flow of funds between the countries for the payment of stock and bond purchases
• Relative growth
• Short term and long term interest rate differentials
• Cost of borrowings