5 Rupees – Nepal

In 1986, Nepal's currency situation was characterized by a tightly controlled and dual exchange rate system, heavily influenced by its economic and geographic dependency on India. The Nepalese rupee (NRs) was pegged to the Indian rupee (INR) at a fixed rate of 1.45 NRs to 1 INR for official transactions, a parity maintained since 1960. This formal link was crucial for trade, as India was Nepal's dominant trading partner, but it also constrained Nepal's independent monetary policy and exposed its economy to inflationary pressures originating in India.

Alongside this official rate, a vibrant black market for foreign exchange, particularly for US dollars, operated due to restrictive currency regulations. The government maintained a complex system of import licensing and foreign exchange allocations, creating scarcity and a premium for hard currency outside official channels. This disparity was driven by the needs of traders, the growing tourism sector, and individuals seeking assets abroad, all of whom were willing to pay more than the official rate to circumvent bureaucratic hurdles and access foreign currency.

The overall economic context was one of a predominantly agricultural, least-developed country with limited industrial base. Revenue generation was weak, and the budget often relied on foreign aid. Consequently, the currency controls of 1986 reflected a protective stance aimed at conserving scarce foreign reserves and managing the balance of payments. However, this system created distortions, encouraged corruption, and was increasingly seen as inefficient, foreshadowing the economic liberalization and exchange rate reforms that would begin in the early 1990s.