Currency crisis: Paisa, kahan cha?

The recent currency shortage has sparked interest in the little bit of economist residing inside me. I'm becoming obsessed with the sudden lack of money in Nepal... Where has all the money gone?

Over the past few days banks have been rationing the amount of cash customers can withdraw because there is a nationwide cash shortage. Some banks have closed ATMs altogether (yikes, because I'm running low on Rupiyas!). Word is, very few people, including the government and national banks, can explain why there is so little money in circulation. There are a few compounding factors, including a delayed shipment of new currency from France. Yes, Nepali money is printed in France. Weird. A large shipment of cash is 2 months late; the newspaper today reported that the government is going to "airlift" the money so that it arrives in the next five days, instead of by October 6th as earlier reported.

Furthermore, at holiday time, it's customary for adults to give new bills to kids as a gift, so many Nepalis go to the bank to withdraw large amounts of money in new bills. Imagine a shortage of money in a cash-based economy at Christmas time...

But, Dashain money usually goes right back into the economy as people generally spend it immediately. Plus, many people buy gifts, with cash, so shops should be depositing more money these days. What's more intriguing is the lack of all bills, old and new. Even if people are withdrawing large amounts of new bills, the central bank has not taken old money out of circulation recently...particularly since the shipment from France has not yet arrived.

The shortage has affected the entire country -- some businesses aren't even able to pay employees their salaries, and banks aren't able to cash checks -- and the government is grasping at straws for answers. In response, the government has decided to put misprinted money (France made some error on a large batch of cash several years back) into circulation for the time being, which is kind of funny. Please use this fake money. And, in some regions, mostly in the South, banks are giving out Indian Rupees instead of Nepali money. That would make sense if they had the same value. Is the exchange rate between Indian currency and Nepali currency 1 to 1? No. The exchange rate is 1.65 Indian Rupees to the Nepali rupiya (or the other way around, whatever).

The question remains: where is the money?

Some reports note the "mysterious disappearance of large denomination bills," which may be a result of businessmen hoarding cash... Who knows where it is, really. It's a mystery!