Historical Sketch

The unification of Nepal began in the mid-18th century, when the mountainous Gorkha kingdom pushed eastward towards the Kathmandu valley where the Newar confederacy of the city states of Kathmandu, Bhaktapur and Patan had existed since the 15th century. In 1768, the valley was conquered. The Gorkha dynasty ruled over Nepal for the next two and a half centuries, until in 2006, when after a ten-years’ civil war the monarchy was overthrown in a peaceful democratic revolution. Since 2008, Nepal is a federal republic.

Monetary History Overview

In the 16th century, king Mahendra Malla of Kathmandu standardized the coinage, which was also taken over by the Gorkha rulers of unified Nepal after 1768. The base coin was the silver Mohur at half a Mughal Rupee of neighbouring India. Silver coins were minted down to the smallest denominations (1/128 Mohur) since copper coins did not come into use until around the mid-19th century. Gold coins were also produced in small numbers, they were traded as bullion with varying rate against silver. The first mechanical mint opened in the late 19th century, but hammered coinage remained common until well into the 20th century. In the 1930s, the coinage system was modernized. The Nepalese Rupee at two Mohurs became the national currency. It was decimal from the beginning, and the old coinage was gradually withdrawn. The state-owned Nepal Bank Ltd. was founded in 1937 to introduce modern banking and took over some central bank functions, but without the authority for money issuance. In 1945, the government started issuing paper money to substitute for the silver coins that had been smuggled out to India during wartime. In 1956, the Nepalese National Bank began operations and issued paper money after 1960. The denomination of the 1945 state paper money was "Mohru", and only on the second banknote series of 1962 this was changed into "Rupee". The wide-spread use of Indian currency and coins in everyday trade persisted throughout the 1960s. In April 1960, the central bank pegged the Rupee to the Indian currency and initiated foreign exchange. Before that time, only a semi-official market rate of the Indian Rupee had already existed and was used in trade with the neighbour. Nepal did not follow the Indian devaluation of 1966, and the Rupee nominally appreciated against the Indian currency, causing economic problems in Nepal which were in parts alleviated by the Nepalese devaluation in November 1967. Further devaluations against the Indian Rupee were done until mid-1986, when the Nepalese currency was pegged against a trade-weighted basket. In February 1993, the Nepalese Rupee returned to the fixed peg against the Indian currency and has remained so since then.

Nepal joined the International Monetary Fund (IMF) on 06.09.1961.

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Monetary History Sources