The country’s international reserve position as of September this year was at USD 1.17B, of which the rupee reserve forms Rs 27.5B, and convertible currency reserve USD 746.3B

The rupee reserve was highest recorded in the first nine months of the year. However, the country’s highest rupee stock was recorded in November last year with Rs 31B.

The total reserve is enough to finance 13 months of merchandise import, according to the Royal Monetary Authority’s (RMA) monthly statistical bulletin.

Convertible currency reserve alone is sufficient to finance 50.8 months of import. However, the rupee reserve will meet 5.6 months of essential import.

It is a Constitutional requirement that a minimum foreign currency reserve that is adequate to meet the cost of not less than one year’s essential import must be maintained.

Foreign currency reserve is crucial for Bhutan as Ngultrum is not a legal tender outside the borders. For an import-driven country, rupee reserve is necessary as more than 80 percent of the country’s imports are from India.

But again, rupee is not a convertible currency, thus the importance of foreign currency. In the past, when the country was hit with rupee shortage, the country has sold convertible currency to replenish the rupee stock. Commercial borrowing in rupee was also backed by the country’s convertible currency reserve, like a mortgage.

However, some economist including Nobel laureate professor Joseph Stiglitz since 2012 suggested that reserves should be held disproportionately in the currency in which the goods were imported. This means that Bhutan’s focus of reserves ought to be in rupee since most of the imports were in rupee.

However, during one the meet-the-press session last year, the Prime Minister said that rupee crisis is over, by definition.

An arrangement with the Reserve Bank of India has also been made where the RBI would facilitate exchange of USD for INR and vice versa. The government in consultation with the Central Bank has also decided to set a threshold rupee reserve of INR 10B and convertible currency reserve of USD 757M for all times.

The government will, however, continue to sell the convertible currency reserve as and when required. For example, a donor agency provides funds in USD for a project. But materials have to be imported from India and certain portion of the USD need to be converted in rupee.

Meanwhile, reserves are also used to service the external debts. As of June last year, the country’s outstanding rupee debt stood at Rs 118B and convertible currency debt was recorded at USD 663M (equivalent to Nu 42.7B).

Tshering Dorji