Improper reserve management cause of rupee shortage

Bhutan is not undergoing an economic crisis but just a rupee shortfall. This statement was made by economic experts from the United Nations Department of Economic and Social Affairs, UN DESA, during an economic forum on macroeconomic challenges, opportunities and policy options for Bhutan.

According to Dr. Rob Vos, Director of the UN DESA the rupee shortfall aroused mainly due to improper reserve management. “Bhutan has enough reserve and the rupee shortage has aroused as Bhutan used excessive Rupee than they have at that point of time. So it’s is not a crisis as you still have reserve,” he said.

Dr.  Hamid Rashid, Senior Advisor, UN DESA, said Bhutan should have kept rupee reserve like the other foreign currencies. “Bhutan should have at least maintained proper rupee reserve. All of sudden RMA sold 200 million dollars (US) in December 2011 due to rupee shortage. There has to be a proper composition of reserves by the central bank.”

While understanding the causes of rupee shortfall, Dr. Hamid Rashid said, there is a need of cautious and proper reserve management and a monetary policy framework to balance the economy. The rupee shortfall is also due to the huge lending by the banks to the private sectors.

A professor and Nobel Laureate, Joseph Stiglitz from the Columbia University said lending has become profitable. “The central bank borrow rupee at 10 percent interest while they lend it out for zero interest. This means lending is more profitable than borrowing. There have to be a proper strategy of money management.”

He added that the Bhutanese economy is doing well. “The rupee crisis needs some adjustments. If we increase the government expenditure it means the country’s economy is improving. The reserves needs to be managed properly,” he added.

Professor Stiglitz said at the moment the central bank has huge reserves in US Dollars which can be converted into Rupees to meet the current demand.

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