Nepal's Foreign Exchange Regime: The Indian Rupee Peg, Convertibility and Capital Controls

Nepal does not have an exchange rate policy. It has an exchange rate, fixed at 1.6 Nepali rupees to the Indian rupee since 1993 under an arrangement whose lineage runs back to 1960, and everything else in the foreign exchange regime is downstream of the decision to keep it there. Rates against the US dollar, euro or yen are cross rates derived from the Indian rupee’s rate against those currencies. Nepal Rastra Bank (NRB) publishes them daily. It does not set them.

What the peg does

The buy side is real. India accounts for the majority of Nepal’s trade, and a fixed rate removes currency risk from that trade and from the pricing of the goods that dominate Nepali consumption. Remittance flows, overwhelmingly the largest source of foreign currency, arrive into a currency whose value households can predict.

The cost is monetary autonomy. NRB cannot set domestic interest rates far away from Indian conditions without provoking flows it would then have to defend, and it cannot devalue to restore competitiveness. When Nepal has faced external pressure, the instrument it has reached for is the one a pegged economy has left: administrative restriction on what may be bought with foreign currency. That is why Nepal’s foreign exchange rules read as a schedule of permitted transactions with numeric ceilings rather than as a market framework.

Right now the pressure runs the other way. Reserves stood at NPR 3,704.55 billion (USD 24.19 billion) at mid-May 2026, 38.3 percent higher than at mid-July 2025, covering 19.2 months of goods and services imports. Remittances of NPR 1,916.90 billion over ten months, up 41.2 percent year on year, produced a current account surplus of NPR 729.28 billion and a balance of payments surplus of NPR 863.56 billion. A regime built for scarcity is operating in a period of abundance. That is the context in which the April 2026 liberalising amendments were made, and the reason to expect further loosening rather than tightening in the near term.

The peg itself has become politically discussable in a way it was not five years ago. A national party included reviewing it in an election manifesto, and the argument now appears in the mainstream commentary pages. Nothing has changed. A foreign investor modelling Nepali exposure over a ten-year horizon should nonetheless stop treating 1.6 as a constant of nature.

The governing statute

The Foreign Exchange (Regulation) Act 2019 BS (1962) is in force. It was among the six statutes amended by the omnibus act authenticated on 31 March 2025. Its architecture is simple. Dealing in foreign exchange is licensed, transactions in foreign exchange are restricted unless permitted, and NRB is given the power to permit. Almost none of the operative content a treasurer needs is in the Act. It sits in the Unified Forex Circular, in the Foreign Investment and Foreign Loan Management Bylaw 2078, in the Remittance Bylaw 2079, and in the licensing and inspection bylaw for foreign exchange transactions, all instruments NRB can change without going near Parliament.

That is worth stating plainly because it determines how to keep current. A rule that matters commercially can change by circular, take effect the day it is issued, and never appear in any consolidated English text. The circular archive is the primary record.

Transaction limits

The amendment of 6 April 2026 to the Unified Forex Circular 2081 is a fair sample of how the regime works at transaction level. Banks may now pay for imported services and membership fees without prior NRB approval, but must notify NRB’s Regulation Department before signing any service agreement above USD 300,000. General service payments are capped at USD 50,000 annually. Information technology service payments are capped at USD 100,000 annually for industries that earn foreign currency and USD 25,000 for individual foreign currency earners. Educational affiliation and examination fees, previously capped at USD 25,000, may now run to USD 500,000 per transaction, with auditor certification required above USD 300,000 in a year. Prepaid cards for IT and communications purchases are limited to USD 3,000 a year, or USD 5,000 for a foreign-currency-earning industry. Individuals may hold up to USD 1,500 in foreign currency cash. The traveller facility was raised from USD 2,500 to USD 3,000 per visit in the FY 2082/83 monetary policy.

The pattern is consistent: a permitted purpose, a numeric ceiling, a documentary trigger above a second threshold, and residual NRB discretion above that. A company whose Nepali subsidiary pays an offshore affiliate for software, management services or brand use is inside this framework whether or not anyone has told it so, and the annual limits bind at entity level.

The draft replacement bill

On 13 July 2026 the Ministry of Finance issued a draft Foreign Exchange (Regulation and Management) Bill for public comment, with a fifteen-day window. It would repeal the 1962 Act and the Act Restricting Investment Abroad 2021 BS (1964) together. This is a draft. It has not been introduced, passed or authenticated, and no provision of it has legal effect.

Its significance, if enacted, would be in three places. It would end the near-total prohibition on Nepali outward investment, though only for defined categories: companies exempted by gazette notice, entities that obtained foreign currency through technology transfer, and information technology firms. That is narrower than the headline. It would put NRB’s power to issue binding directives, procedures, guidelines, circulars and orders on an explicit statutory footing, along with powers to fine, and to suspend or revoke a dealer’s licence for repeated misuse. And it would expressly permit hedging arrangements, which under the present regime sit in an uncomfortable position for any Nepali business with foreign currency liabilities.

The penalty structure reported in the draft is tiered by amount, running from recovery plus a NPR 10,000 fine for the smallest breaches to imprisonment of one month to three years for amounts above NPR 10 million. That is a meaningful change in tone for a regime whose current enforcement is largely administrative.

Licensed dealers

Dealing is a licensed activity and the licence classes are not interchangeable. Commercial banks hold the widest authority and are the only channel through which most corporate transactions can pass. Development banks and finance companies hold narrower permissions. Money changers may buy and sell cash within defined limits. Remittance companies, licensed under the NRB Remittance Bylaw 2079, may handle inbound personal transfers and nothing resembling corporate treasury. NRB maintains and periodically publishes the register of licensed entities, and the Foreign Exchange Transaction Licensing and Inspection Bylaw governs how the licences are granted and supervised.

The implication is narrow but important. A foreign group cannot select a Nepali counterparty for a cross-border payment on price. It must use an institution licensed for that specific transaction type, which for anything involving investment, loans or trade means a commercial bank, and one whose correspondent relationships are good enough to clear the currency involved. Correspondent capacity is the constraint that has tightened since Nepal’s grey-listing, and it is treated in AML/CFT and correspondent banking.

The convertibility question

The mistake foreign treasurers make is to ask whether the Nepali rupee is convertible. The question has no yes-or-no answer, and asking it in that form produces the wrong plan. Trade and service payments within stated limits are routine and bank-administered. Payments above those limits are possible with documentation and, past a further threshold, with NRB involvement. Capital movements — bringing equity in, taking dividends or sale proceeds out, borrowing offshore — are separately administered under their own bylaw and turn entirely on whether the original inflow was correctly recorded. That process is the subject of cross-border money, and it is where the money actually gets stuck.

Sources

1. Foreign Exchange (Regulation) Act, 2019 (1962)

   Government of Nepal · 1962 — in force, as amended, including by the omnibus act authenticated 31 March 2025 · Tier 1 — Primary legal instrument

   Supports: The statutory basis for licensing foreign exchange dealing, restricting transactions in foreign exchange, and NRB's regulatory authority over them.

   Accessed 26 August 2026

2. Foreign Exchange Management Department — bylaws, circulars and licensed entities

   Nepal Rastra Bank · Accessed 26 August 2026 · Tier 2 — Official publication

   Supports: That the department formulates foreign exchange policy, licenses dealers, and issues the bylaws and circulars through which the regime actually operates.

   Accessed 26 August 2026

3. Flash Alert on NRB amendments to the Unified Forex Circular 2081

   PKF T R Upadhya & Co. · Reporting NRB Circular 10/2082/83 dated 6 April 2026 · Tier 6 — Professional or news source

   Supports: Annual and per-transaction limits for service payments, IT service payments, prepaid cards, foreign currency cash holding, letter of credit cash margins and the 120-day customs clearance evidence deadline.

   Accessed 26 August 2026

4. Why Nepal is rewriting its foreign exchange laws

   Nepalnews · Reporting the Ministry of Finance draft issued 13 July 2026 · Tier 6 — Professional or news source

   Supports: The date of the consultation draft, the two statutes it would repeal, and its treatment of outward investment, hedging, dealer licensing, NRB rule-making power and penalties.

   Accessed 26 August 2026

5. Is the peg to INR still a safe harbour?

   The Kathmandu Post · 26 February 2026 · Tier 6 — Professional or news source

   Supports: That the rate has been fixed at 1.6 since 1993 with origins in 1960, the monetary policy constraint it imposes, and that reviewing the peg has entered party political debate.

   Accessed 26 August 2026

6. Current macroeconomic and financial situation, ten months of FY 2025/26

   Nepal Rastra Bank, reported by Nepalnews · Data to mid-May 2026 · Tier 6 — Professional or news source

   Supports: Reserves of NPR 3,704.55 billion (USD 24.19 billion), 19.2 months of import cover, remittances of NPR 1,916.90 billion, and a balance of payments surplus of NPR 863.56 billion.

   Accessed 26 August 2026

7. Monetary Policy for 2025/26 (FY 2082/83) — highlights

   PKF T R Upadhya & Co., summarising Nepal Rastra Bank · Policy announced 11 July 2025 · Tier 6 — Professional or news source

   Supports: The increase in the traveller foreign exchange facility from USD 2,500 to USD 3,000 per visit.

   Accessed 26 August 2026