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Nepal Rastra Bank at 70: The Hidden Engine Powering Nepal’s Economy
by Khatapana
Apr 30, 2025 - 9 min read
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Explore 70 years of Nepal Rastra Bank’s impact on Nepal’s economy, from policy and regulation to financial innovation and national development.
Nepal Rastra Bank, the central bank of Nepal, has quietly powered the nation's economic evolution for the past 70 years. From setting monetary policy to regulating digital payments, its influence touches every corner of modern financial life in Nepal.
Seventy years ago, formal banking was rare. Most people stored value in livestock, grain, or gold. The only commercial bank was Nepal Bank Ltd., and many relied on informal moneylenders or used Indian and Tibetan currencies. Today, you can scan a QR code to pay for momo, receive remittances instantly, or apply for a loan, all without stepping into a branch.
What changed? Behind this transformation is Nepal Rastra Bank, often unseen, but always shaping how money moves, how stable the rupee remains, and how safe our savings are.
In this article, we’ll explore how Nepal Rastra Bank came to be, its key roles in the financial system, its evolution over seven decades, and how it continues to shape Nepal’s economic future.
Before 1956: Life Without a Central Bank
Before NRB was created, Nepal’s economy was mostly informal and unstructured. People saved money in livestock or gold because there were few banks. Barter, the exchange of goods without using money was still common, especially in rural areas.
Indian and Tibetan banknotes were used in daily transactions because Nepal didn’t have its own widely accepted currency. Most people had no access to secure banking services, and there were no clear systems for borrowing, saving, or investing. The government couldn’t control inflation, manage foreign reserves, or protect people’s savings during a crisis.
This made Nepal vulnerable to economic shocks and limited the country’s ability to grow financially. It was clear that the country needed a central institution to issue its own money, oversee banks, and build trust in the financial system.
1956: The Beginning of Nepal Rastra Bank
Before Nepal had a central bank, Nepal Bank Limited (NBL) was established in 1937 as the country’s first commercial bank. While it introduced formal banking to Nepal, NBL couldn’t issue currency, regulate other banks, or manage the country’s monetary policy.
As Nepal’s economy grew, the need for a central institution to guide financial policy and protect the currency became clear. In 1956, the government established Nepal Rastra Bank (NRB) to take on that role.
One of NRB’s first tasks was to issue Nepal’s own currency. In 1960, it released the 1 Mohru note, and over the next few years, Indian and Tibetan currencies were phased out, making the Nepalese rupee the sole legal tender.
This marked the start of Nepal’s full control over its monetary system, and laid the foundation for a more stable, independent economy.
What Does Nepal Rastra Bank Actually Do?
Even though most people don’t directly interact with NRB, it plays a vital role in everyone’s daily life. Whether you're withdrawing cash from an ATM, checking exchange rates, using a QR code, or borrowing money from a bank, NRB is behind the scenes making sure things run smoothly.
Its main responsibilities, as laid out in the Nepal Rastra Bank Act 2002, include:
- Printing and issuing the Nepalese currency
- Managing inflation and keeping prices stable
- Regulating banks, development banks, finance companies, and microfinance institutions
- Managing foreign exchange reserves
- Helping the government with financial planning and budgeting
- Promoting financial inclusion so more people can access banking services
- Encouraging safe and efficient digital payments
In simple terms, Nepal Rastra Bank is the referee, architect, and safety net of the entire financial system.
How NRB Has Changed Over the Years
1950s–1970s: Laying the Groundwork
This was the era of firsts. NRB introduced Nepal’s own currency, established a fixed exchange rate with India, and began supervising key banks like Nepal Bank Ltd and Rastriya Banijya Bank. It also started helping the government manage its finances and debts.
These steps created the basic financial infrastructure the country needed to grow.
1980s–1990s: Rapid Growth, New Risks
As Nepal’s economy opened up, many private banks, cooperatives, and financial institutions entered the market. Interest rates were deregulated, and people gained more access to banking services.
But rapid expansion brought problems too. Some banks gave out risky loans. Rules were unclear, and NRB didn’t have enough trained staff or tools to manage everything. These years highlighted the need for stronger regulation.
2000s: Reforms and Modernization
In 2002, a new law gave NRB more independence from politics and more power to regulate banks. The bank created new departments to supervise financial institutions, manage currency, and conduct research. It started enforcing better rules and gradually became more proactive and professional.
2010s: Going Digital and Expanding Access
Technology changed everything in the 2010s. NRB approved digital wallets, QR payments, and online fund transfers. It promoted branchless banking, especially in rural areas, so more people could access financial services. Banks were also encouraged to lend to women, small farmers, and entrepreneurs.
Banking became faster, smarter, and more inclusive.
2020s: Tackling Modern Challenges
Today, NRB faces complex challenges like online scams, climate risks, and fast-changing financial technologies. The bank is now working on:
- Setting rules for digital safety and cyber fraud
- Promoting green and sustainable banking
- Testing how strong banks are during financial crises
- Using data and AI to monitor risks in real time
NRB’s Fourth Strategic Plan (2022–2026) lays out a clear goal: To become a resilient, tech-savvy, and people-first central bank.
What Nepal Rastra Bank Has Achieved So Far
When we think of Nepal Rastra Bank (NRB), we often picture a place that prints money and sets interest rates. But NRB is much more than that, it's the quiet force that has shaped Nepal’s economic future for the better part of a century. Here’s a look at some of its biggest milestones:
1. From Two Currencies to One Strong Rupee
Before the 1960s, parts of Nepal, especially in the Terai, used Indian currency alongside Nepali notes. It was confusing, chaotic, and made the country financially vulnerable.
NRB changed that. By 1964, it had successfully phased out Indian currency and made the Nepalese rupee the sole legal tender, giving Nepal full control over its monetary system and asserting true financial independence.
2. A Banking System Built From Scratch
In 1956, Nepal had exactly one formal bank. Today? We have over 100 licensed financial institutions, from big commercial banks to grassroots microfinance organizations.
Thanks to NRB’s regulatory framework, this growth has come with control, making banking more accessible while maintaining stability.
3. Making the System Safer and Smarter
NRB has aligned Nepal’s banking rules with international standards like setting capital requirements, improving supervision, and upgrading licensing criteria. These reforms mean today’s banks are far more stable, efficient, and ready to weather shocks.
4. Turning Losses into Billions
In the early 2000s, Nepal Bank Ltd. and Rastriya Banijya Bank were losing USD 80 million a year. They were in crisis. NRB stepped in, led major restructuring, and turned them around. Since 2003, these banks have generated over USD 400 million in profits, a swing of more than USD 1 billion, reducing fiscal pressure and boosting public trust in state-owned banks.
5. Modern Payment Systems for a Modern Nepal
Whether it’s ATM withdrawals, QR codes at tea shops, or mobile wallet transfers, NRB has played a big role in building Nepal’s secure, efficient payment system.
To make digital payments safer, Nepal Rastra Bank has stepped up its regulations. The Unified Payment System Directive 2081 asks platforms like eSewa and Khalti to keep a guarantee fund, use AI to spot scams, and run regular security audits. These changes come as digital payment fraud rose 23% last year, according to NRB.
At the same time, NRB has taken a hard line on cryptocurrency, banning all crypto activities under foreign exchange laws. Critics say this approach stifles innovation and drives talent abroad.
Many are calling for smarter, clearer rules, not just bans.
6. Monetary Policies
One of Nepal Rastra Bank’s core responsibilities is to keep inflation under control and ensure economic stability, especially during tough times.
When prices are rising too quickly (high inflation), NRB can:
- Increase interest rates to make borrowing more expensive, which helps slow down spending and cool off inflation.
- Reduce the amount of money circulating in the economy by asking banks to hold more reserves.
When the economy is slowing down, NRB can do the opposite:
- Lower interest rates so businesses and people borrow and spend more.
- Inject more money into the economy to encourage investment and job growth.
7. Foreign Exchange Management
NRB also manages Nepal’s foreign exchange reserves, the stock of foreign currencies used to import goods like fuel, medicine, and food. This helps keep the Nepali rupee stable and ensures Nepal can pay for essential imports even during global disruptions.
Through these tools, NRB plays a behind-the-scenes role in:
- Keep the value of the Nepali rupee stable
- Avoid sharp spikes in prices
- Make sure businesses and consumers can plan ahead without fear of sudden economic shocks
If you’ve ever taken a loan, sent or received money from abroad, or used a mobile wallet, you’ve experienced the impact of NRB’s monetary decisions, whether you knew it or not.
Why Sending Money Abroad Is So Restricted
While Nepal Rastra Bank works to modernize digital payments and expand banking access within the country, it continues to strictly regulate outward remittances and foreign investments through the Foreign Exchange (Regulation) Act, 2019.
These controls are designed to protect Nepal’s foreign exchange reserves, the foreign currencies (like USD or INR) that Nepal uses to pay for imports and stabilize the economy.
Here’s how the rules work:
- Remittance companies are only allowed to bring money into Nepal, not send it out.
- Only NRB-licensed banks and financial institutions can process outward remittances, and even then, only for approved purposes like education, medical treatment, or official travel, with prior approval.
- Nepali citizens living in Nepal are prohibited from investing abroad (in property, stocks, or foreign bank accounts) unless they get special clearance from NRB.
- Violating these rules can result in fines up to three times the illegal investment amount.
Even Non-Resident Nepalis (NRNs), who have more flexibility, must submit detailed proposals and follow specific investment rules and limits.
While NRB says these rules are necessary to prevent capital flight, critics argue they limit global opportunities for Nepali entrepreneurs, students, and startups, and push many toward informal or risky payment channels.
As Nepal becomes more connected to the global economy, calls for clearer, more modern foreign exchange policies are growing louder.
Who Makes the Decisions at Nepal Rastra Bank?
NRB isn’t run by just one person. It has a team-based structure:
- The Governor leads the institution
- Deputy Governors help oversee daily work
- A Board of Directors sets key policies
- Departments manage specific areas like research, IT, currency, supervision, and regulation
The bank is independent, meaning it can make decisions without political interference, but it also reports to Parliament and works closely with the Ministry of Finance.
What Challenges Does NRB Face Today?
Despite its achievements, NRB still has a lot to deal with. Some of the key challenges are:
- Non-Performing Loans (NPL): A loan becomes “non-performing” when the borrower stops repaying it. As of mid-January 2025, Nepal’s average NPL ratio across banks was 4.49%, as compared to 3.4% during the same period last year
- Online fraud: In just the first seven months of fiscal year 2081/82, the Nepal Police Cyber Bureau received 10,702 cybercrime complaints, a sixfold increase from 2,301 cases in 2019/20.
- Weak regulation of cooperatives: The Cooperative Act 2017 and related regulations have failed to ensure effective monitoring. Many cooperatives operate without proper supervision due to lack of authority, resources, and political interference in regulatory bodies like the Department of Cooperatives
- Uneven access: Nepal has over 100 licensed financial institutions, but they’re concentrated heavily in urban areas like Kathmandu, Pokhara, and Biratnagar. Meanwhile, large parts of the country, especially hill and mountain regions remain underserved.
- Climate risk: Climate change isn’t just about weather, it also affects the economy. Floods, droughts, and landslides can destroy crops, buildings, and livelihoods, especially in agriculture and tourism.
Despite this, most banks in Nepal still don’t assess environmental risk when approving loans. This puts both borrowers and the financial system at long-term risk. NRB has introduced Green Finance Taxonomy, but it is still in the early stages of implementation.
To address these, NRB is tightening rules, improving rural access, upgrading digital security, and promoting green lending.
What’s Next for Nepal Rastra Bank?
NRB is now preparing for a more digital, data-driven future. Here’s what’s in the pipeline:
- Central Bank Digital Currency (CBDC): A new kind of online money that works directly through NRB.
- Smarter tools to detect and stop monetary problems using artificial intelligence and data analytics.
- Faster remittance systems, especially for migrant workers.
All of this is part of NRB’s plan to become a modern, tech-savvy central bank that serves the needs of everyday people.
Final Thoughts
You may not see it or think about it, but Nepal Rastra Bank is part of your life every single day.
It protects your money, helps the economy grow, keeps prices stable, and supports you during emergencies. It makes sure banks follow the rules, promotes digital innovation, and ensures that rural areas and small borrowers aren’t left behind.
Whether you're a farmer getting a loan, a student using a mobile wallet, or a worker receiving remittance from Qatar, NRB is silently working to keep the financial system stable and fair for everyone.
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