Opining local Banks to foreign currency accounts.

A policy change to come into effect from January 2013, if the central bank’s board approves

Revised Draft Foreign Exchange Regulations: Bhutanese or any entity earning foreign currency, whether living abroad or within the country, will be allowed to open foreign currency accounts in Bhutanese banks, starting January 2013.

This is according to the central bank’s revised draft foreign exchange regulations, which need approval of its board to come into effect.

Economists are debating whether this is a major move, or just a small policy change that will have minimal impact on the economy.

Druk PNB’s chief executive officer NK Arora said the revised regulation would improve liquidity in the domestic market because those, who previously maintained their accounts outside Bhutan, would bring it home.

“This should happen, provided the local banks here offer better interest rates than other countries, where non-resident Bhutanese work,” he said.

He also said Bhutanese working abroad, wishing to send home money, need not bear the transaction cost of buying and selling dollars to the banks.

Under the existing regulation, Bhutanese earning foreign currency are not allowed to open a foreign currency account.  Therefore, the preferred choice of remitting money home was either done through Western Union or manually delivered by their friends or relatives coming home.

One economist said it would favour only big businesses. Transacting through the bank in exchange of ngultrum always comes with a price, because the bank’s selling price for hard currency is always higher than the buying rate.

Businesses initially sold their dollars to the banks at a given rate and, when they required dollars, they bought the dollars back from the bank at a higher rate.  In this way, the businesses were losing. “With the new regulation, this could be avoided,” the economist said.

To individuals, the revised regulation would not mean much, because there are no incentives at all. “Instead, these individuals sending money home would lose a certain percentage, while converting it into ngultrum,” the economist said. “Individuals would still prefer the existing way of sending money home.”

In any case, individuals and families receiving remittances from abroad want it in hard currency that can be exchanged and sold anywhere and at anytime.

The regulation, however, does not allow the tourism industry, which is the biggest hard currency earner to open foreign currency accounts. “We’re working on with the tourism council on this particular issue,” the director of central bank’s foreign exchange department said.

Another industry, which earns foreign currency, is the apple and mandarin exporters.  Central bank official said that, while they would be allowed to open a foreign currency account, they could use the money only for import of raw materials for their particular line of business.

“This aspect isn’t very clear,” an orange exporter said. “There are many involved in the orange export business, and its earnings are used to run other businesses, like factories.”

According to the central bank’s monthly statistical bulletin (November), non-resident Bhutanese remittances through formal channels were around Nu 350M between January and September this year.  Most of it was in US dollars.

The revised regulations will also formalise the creation of moneychangers.