A growing debate is emerging over the impact of foreign currency settlement rules on Bhutan’s trade, financial management, and confidence in the ngultrum, after concerns were raised during an audit review meeting involving the Food Corporation of Bhutan (FCB).
The issue came to light when an audit observation pointed to a worrying build-up of outstanding receivables owed to FCB by traders across the border. In some cases, officials were told, the dues had remained unsettled long enough to turn into bad debts.
During the meeting, one explanation offered by the management was linked to an existing requirement that Bhutanese exporters must receive payment in Indian rupees through formal banking channels rather than in Bhutanese Ngultrum (BTN).
At the policy level, the rationale is clear. Bhutan depends heavily on imports, many of which must be paid for in Indian rupees. Ensuring that export earnings are received in INR helps support the country’s foreign currency position and allows institutions to meet external payment obligations.
However, officials say the practical realities on the ground are more complex, particularly in border trade where BTN already circulates widely.
“On paper, the policy makes sense because Bhutan needs rupee liquidity to support imports,” said a Member of Parliament (MP) from the National Assembly’s (NA) Public Accounts Committee (PAC) familiar with the discussions. “But in practice, the market does not always operate in such a neat and orderly way.”
In Indian border towns, many traders already hold sizeable amounts of ngultrum because Bhutanese shoppers frequently make purchases there using the local currency. “But if Bhutanese exporters are required to accept payment only in Indian rupees, those traders must first convert the ngultrum they hold into INR before settling their dues,” the MP further reiterated.
For people familiar with the matter, this conversion does not always take place through formal banking channels. Instead, it is often routed through informal markets where the ngultrum is exchanged at a discount against the rupee, despite the official one-to-one peg between the two currencies.Market sources say the discount can range from around three to seven percent, depending on demand, liquidity, and location, subsequently raising several concerns.
Delayed conversion often results in delayed payments to Bhutanese exporters. As traders wait for more favourable rates or postpone settlement, institutions such as FCB are left carrying large receivables on their books. In more serious cases, these outstanding dues become difficult to recover.
Once receivables start piling up, it becomes both a financial and operational issue. “It affects cash flow, weakens balance sheets, and creates uncertainty for agencies that depend on timely settlement,” said a financial expert.
The practice has the effect of creating a shadow exchange market for Bhutan’s own currency. While the ngultrum remains officially pegged at par with the Indian rupee, its discounted trading in informal markets suggests a different effective value in daily cross-border transactions.
“This is where the issue becomes bigger than a simple payment rule,” added the expert. “If the ngultrum is being informally discounted in practice, then Bhutanese citizens are indirectly losing value when they spend across the border. That has consequences for public confidence.”
There are broader concerns that repeated reliance on foreign currency settlement may gradually weaken the role of the ngultrum itself in trade. If multiple sectors begin requiring payment in rupees rather than in Bhutan’s own legal tender, it may reinforce the perception that INR is the preferred and more reliable currency for commercial transactions.
A related concern has also emerged in the tourism sector. It is understood that immigration authorities are required to collect the Sustainable Development Fee (SDF) and other charges from Indian tourists in Indian rupees rather than in ngultrum.
For some analysts, this reflects a broader policy direction aimed at preserving foreign exchange reserves. Yet they caution that when such measures intersect with actual market behaviour, the outcome can be counterproductive.“The intention is understandable,” said a former financial sector official. “Bhutan must protect its foreign currency reserves because it is a small, import-dependent economy. But if the rules create friction in payment systems, encourage informal currency trade, and delay export proceeds, then we need to examine whether the policy is achieving its full purpose.”
Economists note that a national currency is not only a means of exchange but also a symbol of economic confidence and state authority. When public institutions themselves are unable or unwilling to accept ngultrum in certain transactions, even for sound administrative reasons, it can gradually shape perceptions about the relative standing of the currency.
“A currency’s strength is not only in its legal status, but in how confidently it is used and accepted,” an economics professor from a reputed college said. “If people begin to feel that the rupee is necessary for important transactions while the ngultrum is secondary, it can influence behavior over time.”However, there is no suggestion that Bhutan’s currency framework is under immediate threat. The ngultrum remains pegged to the rupee and continues to function as the country’s legal tender. But the concerns now being raised suggest that the interaction between currency policy and border market dynamics deserves closer attention.
Some observers argue that the issue warrants a wider national conversation involving monetary authorities, trade institutions, economists, and the public.
“This is not just about one institution or one audit observation,” the MP said. “It is about how currency rules affect farmers, exporters, traders, and ordinary citizens in everyday transactions. The long-term health of the economy depends on getting that balance right.”
Tashi Namgyal
From Thimphu
