Bhutan began to issue its own currency only at the beginning of the period. For some years the Indian rupee was the dominant currency, but monetisation contributed to the ngultrum taking the larger share although the Indian rupee continues to circulate alongside it at par. From the 1990s Bhutan has had an increasingly active central bank and while monetary policy is limited by the peg to the rupee there has been considerable financial development.


Targets and attainment



main currency is Indian rupee (barter remains important), but own currency ngultrum first issued 1974 by Ministry of Finance through state-owned Bank of Bhutan (BoB, the only commercial bank), exchanging at par with Indian rupee (most foreign trade is with India, trade and financial flows with third countries heavily regulated); initially no central bank, no real monetary system, but a few nonbank financial intermediaries; fiscal policy conservative (plus subsidy from India); Bhutan joins IMF 1981; Royal Monetary Authority (RMA) set up 1982 but not active until 1984, when it takes over functions of currency issue and (in part) reserve holding; small reserve requirement introduced but monetary policy operates mainly via moral suasion of RMA over BoB; 1988 RMA becomes banker to government; gradual rise in monetisation of economy and in share of ngultrum; statistical data poor but improving

use of another sovereign’s currency UASC


dual currency system (‘near currency board’ arrangement, Wolf et al., 2008, p46) continues but ngultrum now has larger share than rupee and RMA is functioning as central bank, acting as banker to government, setting reserve requirements and regulating interest rates; fiscal policy and moral suasion used as (imperfect) instruments to control monetary growth; from late 1993 central bank bills and basic OMOs, with further developments over time; 1994 reserve management consolidated under central bank, with transfer of rupee liabilities from BOB to RMA and repayment of debts to India from forex reserves; 1996 start of slow interest rate liberalisation; 1997 some forex market liberalisation; 1997 nonbank financial intermediary converted into (second) commercial bank; RMA struggles to absorb recurring excess liquidity due to Indian financing of hydropower investments and balance of payments surpluses, while high levels of trade and financial flows with India but of reserves in other currencies complicate reserve management; new bank base rate system 2012 fails to improve monetary transmission;  statistical database improves very slowly

augmented exchange rate fix AERF

Selected IMF references: RED 1982 pp7-8, 10-12, 17; SR 1982 pp3, 9-10; RED 1983 pp18-19; RED 1985 pp36, 40-2, 62 SR 1985 pp8-9; RED 1989 pp21-2; SR 1990 p11; RED 1993 p15; SR 1993 pp5-6, 11; RED 1994 pp4-5, 8-9, 12; SR 1994 pp6, 8-10; SR 1995 pp10-11; SIss 1996 pp17-21; SR 1999 pp9-10, 12-13; SR 2001 pp5, 11-12; SISA 2003 pp4-23; SR 2007 pp6-7, 9-11; SI 2014 pp14-16; SR 2016 pp9-11, 18; SR 2018 pp9-12.

Other references: Wolf et al. (2008).

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