Why does the Nepal Rastra Bank Governor sign our currency notes?
Dec 1, 2022 - 2 min read
What is written in the currency note?
नेपाल राष्ट्र बैंक
नेपाल सरकारको जमानत प्राप्त
यसको रुपैयाँ भुक्तानी माग्न आएमा
नेपाल राष्ट्र बैंक बाट रुपैयाँ १०००
रुपैयाँ एक हजार
Guaranteed By The Nepal Government
The payment will be made promptly from Nepal Rastra Bank if (anyone) comes to demand the payment for this Rupee
Have you ever wondered why this is written and why the Governor of Nepal Rastra Bank signs our currency note?
What is a currency ?
Currency is a tangible form of money issued by a government and thus accepted at face value as a method of payment.
It could be also interpreted as a government-issued promissory note.
And thus it has the promise signed by the Governor of the Central Bank to pay the value that the currency represents whenever required.
So why is it the Governor and not any other government official signing it? E.g. the President or the Prime-minister
Because as the central bank of Nepal, the Nepal Rastra Bank (NRB) has the exclusive right (monopoly) to print currency notes. (Section 52, NRB Act 2058)
And as the Nepal Government’s banker and financial agent, the Government’s guarantee of currency value is declared by the NRB through its authorised representative “The Governor”!
So what does the Government Guarantee and the promise to pay promptly the value of the concerned currency mean?
While the NRB has the right to print currency notes, it can do so only after keeping assets such as gold, silver, foreign currency, etc. as security.
Hence, the liability of the issued notes/currency should be equal to the value of such property kept as security.
What type of assets can NRB keep as security to print notes?
At least 50% of such security assets should be:
- Foreign currency
- Foreign securities (shares)
- Foreign bills of exchange
The other half may be in the form of:
- Debt bonds issued by Nepal Government
- Promissory notes/bills of exchange payable in Nepal within a maximum of 18 months
With prior permission, the central bank may alter the above 50:50 security ration to 40:60!
So what does the promise to pay promptly have to do with all this?
This means that the currency note that you have has a backing of valuable assets and the payment of the value will not be denied or defaulted in any condition!
Because there are other universally accepted assets like gold/foreign currency with the NRB to pay the value of the currency note.
And hence the Nepal Rastra Bank will be able to pay the value in any situation. Yes, any situation whatsoever!
Hence, no one in Nepal can deny a Nepali currency note as a method of payment. If someone does so then they are clearly not obeying the law of the land!
Interesting! Isn’t it?
What about coins? Why don’t they have any promise or signature of the Governor? Comment below!