Indian currency has been in circulation in Nepal for ages, but new currency notes of Rs 2,000 and Rs 500 cannot be used in the country. The Nepal Rashtra Bank has termed the use and exchange of new currency notes issued by the Reserve Bank of India as 'unauthorised and illegal' in the country.

Nepali website, Online Khabar (http://english.onlinekhabar.com/2016/11/24/390199), quoted NRB spokesperson Narayan Poudel as saying, "These new notes are yet to be legal in Nepal. These notes will be legal in Nepal only when India issues a FEMA notification as per the Foreign Exchange Management Act."

The RBI has not yet issued any notification under FEMA for the use of new currency notes by a foreign national.

The Online Khbar also reported that "Earlier a ban was in effect in Nepal against the use of INR of 500 and 1000 denominations. Through a notification, authorities had lifted this ban after the visit of India's Prime Minister Narendra Modi to Nepal."

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This notification allowed Nepali nationals to transact in IC notes of 500 and 1000 denominations up to IC 25000.

Interestingly, the use of old currency notes of Rs 500 and Rs 1,000 continue to be legal in Nepal. The newspaper quoted Poudel saying, "Before the issuance of FEMA notification, transaction in IC notes of 500 and 1000 denominations will continue to be illegal."

However, the NRB has cautioned the Nepali citizens from using discontinued Indian currency saying that such transactions can cause problems.

At present, transaction in Indian currency notes of up to 100 denominations is legal in Nepal.

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