Bhutan’s Indian Rupee Shortage: Macroeconomic Causes and Cures
Ura, Karma | September 2015
Abstract
With over 74% of Bhutan’s trade taking place with India, ample holdings of Indian rupee reserves are critical for trade, a lot of which includes importing essential food items from India. In addition to trade, much of Bhutan’s public debt, and even private consumption debt for Indian sourced consumption goods—which has been growing along with rapid economic growth—is denominated in rupees. Servicing this debt thus also necessitates rapid conversion of ngultrum to rupees. In 2011, these combined pressures on rupee holdings extended to levels unable to be matched by official rupee holdings, resulting in what has come to be known as the liquidity or rupee crisis. This paper analyzes the causes and cures of the Indian rupee crisis and finds that excessive monetary growth, inflation differentials between India and Bhutan, and terms of trade imbalances were key factors in the Bhutanese liquidity crisis. It provides recommendations for the ongoing management of rupee reserve holdings.
Citation
Ura, Karma. 2015. Bhutan’s Indian Rupee Shortage: Macroeconomic Causes and Cures. © Asian Development Bank. http://hdl.handle.net/11540/9744.ISSN
2313-5867(Print)
2313-5875(e-ISSN)
Keywords
Risk Financing
Regional Development Finance
Public Finance
Infrastructure Financing
Financing of Infrastructure
Financial Security
Financial Intermediation
Finance And Trade
Enterprise Financing
Trade Regulation
Trade Finance
Regional Trade Agreements
General Agreement On Tariffs And Trade
Foreign and Domestic Financing
Cybersecurity
Taxation
Business Financing
Investment Requirements
Capital Needs
Tax Incentives
Project Risks
Tariff agreements
Customs conventions
Import policy
Export policy
International Monetary Relations
Local Finance
Banks
Capital Market
financial statistics
Foreign trade
Digital
Investments
Finance
Market
Markets
Use tax
Tax administration and procedure
Taxing power
Effect of taxation
Business enterprises
Foreign trade and employment
Mentoring in business
Trade routes
Bills of exchange
Swaps
International banks and banking
Capital movements
Central banks and banking
Bills of exchange
Swaps
Banks and banking
Stock exchanges
Market
Exchange
Balance of trade
Cyber Security
e-commerce
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