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Kathmandu Friday October 05, 2001 Ashwin 19, 2058.
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Nepal, China move towards Yuan
convertibility
By Prem Khanal
KATHMANDU, Oct 4 - The central banks of Nepal
and China have begun mutual consultations to simplify existing currency exchange regime
between the Nepali and Chinese currencies.
The measure is likely to culminate the Yuan, the
Chinese currency convertible in the Nepali market, providing a greatly needed boost to
bilateral trade and tourism prospects.
"If everything goes as planned, the Chinese
Yuan along with other 19 foreign currencies would enter Nepal Rastra Bank’s (NRB)
foreign exchange list probably by the end of this year," says official at NRB. The
commercial banks here would accept Yuan after it gets enlisted in the NRB foreign currency
list.
Such a scheme is expected to boost the tourism
industry here, especially after an agreement between the two countries to list Nepal on
China’s "outbound destination" is signed. The agreement, which would make
Nepal one of the officially-sanctioned destinations for Chinese tourists, is due to be
concluded next month.
Tourism entrepreneurs here worry that such a
tourism scheme would fail if there is no convertibility of the Yuan in the Nepalese
market. However they are hopeful of the current ongoing consultations.
"We have been demanding such arrangement
for quite a time now," says Pradeep Raj Pandey, Chief Executive Officer of Nepal
Tourism Board. "The proposed arrangement would definitely encourage the Chinese
tourists to visit Nepal once the domestic commercial bank starts accepting their
currency".
According to the latest data, more than 10
million Chinese visit other countries annually.
"Expected convertibility of the Chinese
Yuan cannot be achieved without the Chinese authorities taking some measures," says
NRB official. "To expedite the process, NRB has recently sent a proposal to the Bank
of China outlining the needed measures before making the Yuan a convertible currency in
the Nepali forex market".
A senior NRB official said the Central Bank has
requested the Chinese authorities to lift the ban on the outflow and inflow of Yuan. The
Chinese currency regulation prevents the outflow and inflow of Yuan. After such ban is
lifted, Nepali banks would be able to buy and stock Yuan by paying other convertible
currency.
Such a system would also enable Nepali
businessmen to take Yuan to China from Nepal, much as businessmen buy Indian currency here
to take to India though the latter too has such currency controls. At present, businessmen
have to buy Yuan inside China itself to do business.
"The Chinese government should allow use of
its currency in the trade transaction before including the Yuan as the acceptable foreign
currency for the Nepali banking system," says an official of NRB.
The lack of convertibility between the Chinese
currency and domestic currency here has been a major obstacle for the full-fledged trade
between Nepal and China, especially with the Tibetan Autonomous Region. As the Nepali
banking system doesn’t accept Yuan, the Nepali traders here (those exporting to
Tibet) are compelled to import various Chinese goods equivalent to the value of their
exports - a sort of barter system - to sell here and recoup their investments.
"The exiting business system is very
lengthy and risky and takes months to recoup our investment, let alone making a
profit," says Nil Kantha Chaulaghai, Vice president of Trans Himalayan Trade
Association.
Another measure proposed by NRB to Chinese
authorities is to allow Nepali businessmen to enjoy various discounts while purchasing
goods inside China in Yuan. Businessmen currently enjoy some tax concessions in China but
only because they have to pay in US dollars or other international convertible currencies.
"In the absent of such privileges, the Nepalese businessmen wouldn’t be
attracted towards using the Yuan," Chaulaghai stressed.
NRB officials say that the proposed exchange
regime would be helpful in promoting export from Nepal as that would cut down on the
barter system. Similarly, the Yuan accumulated in Nepal can be used to finance the imports
from Tibet. "The use of Yuan collected in Nepal is not a problem particularly,
because of huge existing trade deficit with Tibet," stresses the NRB official.
Bilateral trade volume between Nepal and China
stands a little over Rs 11 billion, a large part of the trade favouring China.
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