Currency Law in Nepal: Offenses, Penalties, and Legal Insights

Nepal's economic sovereignty relies heavily on the credibility and stability of its national currency system. As the economy becomes more interconnected with global finance and trade, ensuring the integrity of Nepalese currency and monetary instruments is essential. At the core of this protection lies Nepal's comprehensive currency laws, spearheaded by the Nepal Rastra Bank (NRB), which regulate currency issuance, monitor foreign exchange, and enforce penalties against offenses such as counterfeiting and misuse.

In this article, we break down the currency law framework in Nepal, key offenses related to currency, punishment provisions under the National Penal Code, and challenges in enforcement.

The Legal Framework of Currency Regulation in Nepal

Nepal Rastra Bank Act, 2002

Nepal Rastra Bank (NRB) serves as the central monetary authority, empowered by the Nepal Rastra Bank Act, 2002. Its primary responsibilities include:

• Issuing currency (Nepalese Rupee - NPR)

• Regulating and stabilizing the monetary system

• Managing inflation and ensuring liquidity

• Supervising and controlling foreign exchange

• Promoting economic development through monetary policy

Foreign Exchange (Regulation) Act, 1962

This act empowers the government and NRB to control and regulate foreign exchange dealings, essential for protecting the domestic economy and preventing capital flight, illegal currency transactions, and money laundering.

National Penal Code, 2074 (2017)

Chapter 22 (Sections 256 to 266) of the National Penal Code defines offenses related to currency and prescribes punishments ranging from monetary fines to long-term imprisonment.

Definition of Currency (Sec 257(2a))

According to the Penal Code, currency includes:

• Banknotes and coins

• Cheques, drafts, money orders

• Traveler's cheques, letters of credit and exchange

• Postal notes, bonds, credit cards

• Any other monetary instruments recognized by the NRB through official notice

Offenses Relating to Currency in Nepal

Currency offenses are treated as state crimes and prosecuted as such. Here's a detailed breakdown of key offenses:

1. Counterfeiting of Currency (Sec 256)

Definition: Unauthorized creation of fake currency resembling legal tender issued by NRB or foreign authorities.

Penalty: 5 to 10 years of imprisonment and a fine between NPR 50,000 to NPR 100,000.

2. Use of Counterfeit Currency (Sec 257)

Definition: Buying, selling, importing, exporting, or using counterfeit money with the intent to pass it as genuine.

Penalty: Up to 7 years of imprisonment and a fine up to NPR 70,000.

3. Possession or Making of Counterfeit Instruments (Sec 258)

Definition: Creating or possessing tools intended for counterfeiting currency.

Penalty: Up to 7 years of imprisonment and a fine up to NPR 70,000.

4. Producing Substandard Currency (Sec 259)

Definition: Authorized bodies producing currency against the legal standards, exceeding limits, or for personal gain.

Penalty: Up to 7 years of imprisonment and a fine up to NPR 70,000.

5. Unlawful Transport of Currency-Making Equipment (Sec 260)

Definition: Removing currency-producing tools from designated premises without legal authorization.

Penalty: Up to 5 years of imprisonment and a fine up to NPR 50,000.

6. Altering or Diminishing Currency (Sec 261)

Definition: Changing the metallic composition or weight of coins to deceive or make them appear as other currency.

Penalty: Up to 5 years of imprisonment and a fine up to NPR 50,000.

7. Circulating Banned Currency (Sec 262)

Definition: Using, exchanging, or possessing currency declared illegal by government order.

Penalty: Up to 1 year of imprisonment or a fine up to NPR 10,000 or both. The currency involved is subject to forfeiture.

8. Damaging or Defacing Currency (Sec 263)

Definition: Burning, tearing, melting, writing on, or otherwise making banknotes or coins unusable without authority.

Penalty: Up to 3 months of imprisonment and a fine up to NPR 5,000.

9. Misuse of Damaged Banknotes (Sec 264)

Definition: Individuals authorized to dispose of damaged currency misusing it for personal benefit.

Penalty: Up to 3 years of imprisonment and a fine up to NPR 30,000.

10. Forfeiture of Equipment (Sec 265)

Any currency, machines, or tools used in committing currency-related offenses shall be confiscated by the state.

11. Statute of Limitation (Sec 266)

Complaints must be filed within one year from the date of knowledge of the offense.

Currency Offenses in Nepal – Definitions and Penalties

Practical Implications of Currency Laws in Nepal

Currency law is not limited to criminalizing fake notes. It plays a key role in:

• Ensuring economic stability: Legal provisions help maintain the value and trust in NPR.

• Preventing financial crimes: Currency laws support broader efforts in anti-money laundering and terrorist financing.

• Promoting secure digital finance: As Nepal transitions to digital platforms, safeguarding financial instruments is crucial.

Challenges in Enforcement

Despite strict laws, several issues hinder effective enforcement:

1. Border Sensitivity

Nepal's open border with India enables the smuggling of counterfeit currency. Cross-border cooperation is essential.

2. Digital Currency Threats

Cryptocurrencies remain unregulated. The NRB has cautioned against their use but lacks full enforcement mechanisms.

3. Public Awareness

Many individuals are unaware of what constitutes counterfeit money or how to identify it.

4. Limited Technological Resources

Lack of advanced forensic tools and lab support limits the identification and tracking of fake notes.

Institutional Roles

Nepal Rastra Bank (NRB)

• Manages currency design and circulation

• Educates the public on identifying genuine currency

• Coordinates with international agencies for exchange rate stability and anti-counterfeit strategies

Financial Information Unit (FIU)

Part of NRB, this unit monitors suspicious transactions and shares intelligence with enforcement agencies.

Law Enforcement Agencies

Police and the Department of Revenue Investigation enforce currency laws and conduct raids on counterfeit networks.

Related Laws and Policies

Assets (Money) Laundering Prevention Act, 2008

Any form of currency misuse can be related to money laundering. The Act penalizes conversion of criminal proceeds into legitimate-looking currency.

Bank and Financial Institution Act (BAFIA)

Requires all banks and licensed financial institutions to report suspicious activity and comply with NRB directives.

Recommendations for Strengthening Currency Law Enforcement

• Technology Investment: Introduce advanced scanners and training for counterfeit detection.

• Public Awareness Campaigns: Promote educational outreach in banks, schools, and marketplaces.

• International Collaboration: Strengthen cooperation with India and international watchdogs.

• Stronger Penalties: Increase penalties for repeat offenders and currency syndicates.

• Cryptocurrency Regulation: Clearly define the legal stance and enforcement strategy regarding crypto-assets.

Conclusion

Currency laws in Nepal play a vital role in preserving the integrity of the financial system. By penalizing counterfeiting, regulating currency production, and monitoring foreign exchange, these laws ensure economic stability and public confidence in the Nepalese Rupee. While current laws like the National Penal Code and Nepal Rastra Bank Act provide a strong foundation, challenges in enforcement, public awareness, and technology need to be addressed.

Strengthening legal provisions, enhancing cross-border cooperation, and increasing public vigilance can help Nepal build a resilient financial system. For anyone dealing with currency, whether individuals, businesses, or government authorities, compliance with currency laws isn’t just a legal necessity—it’s a patriotic duty.