Annual Report on Exchange Arrangements and Exchange Restrictions 2005


International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of December 31, 2004)

Status Under IMF Articles of Agreement
Article XIVYes.
Exchange Arrangement
CurrencyThe currency of Bhutan is the Bhutanese ngultrum.
Exchange rate structureUnitary.
Conventional pegged arrangementThe ngultrum is pegged to the Indian rupee at par. The rates for currencies other than the Indian rupee are determined on the basis of the prevailing exchange rates of the Indian rupee (average rate) against the currencies concerned. Indian rupee banknotes and coins circulate freely in Bhutan.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketNo.
Arrangements for Payments and Receipts
Prescription of currency requirementsTrade transactions between Bhutan and India may be conducted only in ngultrums or Indian rupees.
Use of foreign exchange among residentsExcept for payments for duty-free goods, handicraft items, and purchases of Druk Air (Royal Bhutan Airlines) tickets by foreigners, all other payments in Bhutan must be made in local currency.
Payments arrangements
Bilateral payments arrangements
Clearing agreementsBhutan is a member of the ACU.
Administration of controlThe MOF has delegated to the Royal Monetary Authority (RMA) the authority to release foreign exchange (other than Indian rupees) for current transactions. The RMA is responsible for approving the use of foreign exchange for payments for current transactions and implementing the surrender requirements for proceeds from merchandise exports.
Payments and transfers by residents to nonresidents other than in cash and traveler’s checks must be channeled through authorized banks in Bhutan.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Banking institutions have been instructed to freeze all capital transfers and financial assets of individuals, groups, and organizations associated with terrorism, pursuant to the relevant UN Security Council resolutions. In addition, financial institutions are required to report to the RMA any financial transactions linked to terrorist groups.
In accordance with UN sanctionsYes.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on external tradeImports of gold and silver by Bhutanese citizens are permitted up to stipulated quantities. Imports beyond this require special permission from the RMA.
Controls on exports and imports of banknotesImports of gold and silver by Bhutanese citizens are permitted up to stipulated quantities. Imports beyond this require special permission from the RMA.
Controls on exports and imports of banknotesThe importation and exportation of cash and securities above a certain limit are subject to a declaration of value at the customs point of entry into and departure from Bhutan.
On exports
Domestic currencyExports exceeding Nu 5,000 require permission from the RMA.
Foreign currencyExports of convertible foreign currency legally imported or purchased from authorized banks are allowed freely. Exports of Indian rupees (except for Re 500 and Re 1,000 banknotes) are allowed only to India and Nepal.
On imports
Domestic currencyImports exceeding Nu 5,000 require approval by the RMA.
Foreign currencyImports of convertible foreign currencies are permitted freely, but amounts exceeding the equivalent of $10,000 are subject to customs declaration. Imports of Indian rupees (except for Re 500 and Re 1,000 banknotes) are allowed only from India and Nepal.
Resident Accounts
Foreign exchange accounts permittedThe following categories of persons are permitted to open and maintain dollar-denominated foreign currency accounts with authorized banks in Bhutan: (1) diplomatic missions in Bhutan and their expatriate employees, (2) representative offices of donor agencies and their expatriate employees, (3) third-country contracting firms and their expatriate employees engaged in executing projects financed by donor agencies, and (4) any person who is a national of a third country and resides in Bhutan.
Held domesticallyYes.
Approval requiredYes.
Held abroadBhutanese nationals are not permitted to hold foreign exchange accounts abroad. These accounts are permitted only for residents who are foreign nationals.
Accounts in domestic currency held abroadn.a.
Accounts in domestic currency convertible into foreign currencyNo.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyThese accounts are permitted but only for nonresidents who are foreign nationals.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for imports
Domiciliation requirementsYes.
Letters of creditYes.
Import licenses used as exchange licensesYes.
Import licenses and other nontariff measuresAn import license is required for the importation of capital and intermediate goods from countries other than India. Such licenses are governed by the Rules and Procedures for Imports of Goods from Third Countries issued by the Department of Trade of the Ministry of Trade and Industries. Foreign exchange for all payments related to licensed merchandise imports is automatically made available by authorized banks against import licenses. Capital imports from third countries by foreign direct investors must be financed by their own convertible foreign exchange resources.
Negative listYes.
Import taxes and/or tariffsImports from countries other than India are subject to tariffs. Imports from India are subject only to the Bhutanese sales tax.
State import monopolyn.a.
Exports and Export Proceeds
Repatriation requirementsYes.
Surrender requirementsProceeds in currencies other than the Indian rupee must be surrendered to the RMA directly or to authorized banks in Bhutan.
Financing requirementsNo.
Documentation requirements
Letters of creditYes.
Preshipment inspectionYes.
Export licenses
Without quotasYes.
With quotasYes.
Export taxesExports to countries other than India receive an export tax rebate at rates ranging from 5% to 20% of the c.i.f. value, with the lowest rate applying to unprocessed primary products and the highest rate applying to processed products.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersAll invisible payments, other than those made in Indian rupees, must be approved by the RMA. The RMA is authorized to set limits on foreign exchange for payments for invisible transactions.
Trade-related payments
Prior approvalYes.
Indicative limits/bona fide testYes.
Investment-related paymentsUnder the 2002 Foreign Direct Investment Policy, foreign direct investors may remit profits and dividends from net earnings only in convertible foreign currency.
Prior approvalYes.
Indicative limits/bona fide testYes.
Payments for travel
Prior approvalYes.
Quantitative limitsTravel allowances are limited to the equivalent of $1,500 a ticketed passenger each calendar year. In the case of business travel, a country-specific per diem covering accommodation is provided to travelers. There are no time limits for business travel.
Indicative limits/bona fide testYes.
Personal paymentsAllowances for educational fees and tuitions are given based on the statements provided by the institutions. Students may also purchase foreign exchange for a monthly stipend of $900 and a onetime settling-in allowance of $1,500 or the equivalents. The settling-in allowance and three monthly stipends may be purchased in advance
For medical expenses, subject to referral by a local physician for treatment abroad, foreign exchange may be purchased to cover the cost of treatment and medicine and for living expenses abroad.
Prior approvalYes.
Quantitative limitsA citizen of Bhutan, who under the recommendation of a medical specialist travels to a country other than India for medical treatment, is permitted to purchase foreign exchange from authorized banks within the limit prescribed by the RMA for the cost of treatment and medicine and for living expenses.
Foreign workers’ wages
Prior approvalForeign nationals employed directly by a public or private organization in Bhutan with prior approval of the Royal Government of Bhutan are permitted to remit their salary and savings in foreign exchange through an authorized bank.
Quantitative limitsThe RMA may set limits on any or all such remittances as it deems necessary.
Credit card use abroad
Prior approvalYes.
Other payments
Prior approvalYes.
Indicative limits/bona fide testYes.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsForeign exchange proceeds of any receipts or holdings by Bhutanese citizens and companies should be repatriated to Bhutan by transferring such claims and funds to authorized banks in Bhutan.
Surrender requirementsAll receipts from invisible transactions in currencies other than the Indian rupee must be surrendered to the RMA or ADs.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsAll capital transactions must be approved by the RMA, except gifts, endowments, inheritances, and legacies to residents from nonresidents.
Controls on capital and money market instrumentsControls apply to all transactions in capital and money market instruments
Controls on derivatives and other instrumentsControls apply to all these transactions.
Controls on credit operationsAll transactions in credit operations are subject to controls.
Controls on direct investment
Outward direct investmentYes.
Inward direct investmentUnder the 2002 Foreign Direct Investment Policy, direct investment in convertible foreign exchange may be made in (1) manufacturing, with a minimum investment of $1 million, of which 20% to 70% could be foreign investor equity; and (2) services, with a minimum investment of $500,000, of which 20% to 70% could be foreign investor equity. Other collaboration in different forms, such as technical and marketing collaboration, and franchises for use of trade names, patents, and trademarks, are allowed with prior permission of the Ministry of Trade and Industry.
Controls on liquidation of direct investmentYes.
Controls on real estate transactionsControls apply to all real estate transactions.
Controls on personal capital transactions
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsYes.
Transfer of assets
Transfer abroad by emigrantsYes.
Transfer into the country by immigrantsYes.
Transfer of gambling and prize earningsYes.
Provisions specific to commercial banks and other credit institutions
Maintenance of accounts abroadYes.
Investment regulations
Abroad by banksYes.
Provisions specific to institutional investors
Limits (max.) on investment portfolio held abroadYes.
Other controls imposed by securities lawsn.a.
Changes During 2004
No significant changes occurred in the exchange and trade system.

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