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Monetary Policy in Bhutan: Implications of Indian Rupee Circulation

Akihiko Kawaura

ビジネス創造センターディスカッション・ペーパー (Discussion papers of the Center for Business Creation) from Otaru University of Commerce

Abstract: The central bank of Bhutan issues its currency the ngultrum. At the same time, the Indian rupee circulates within the country with parity This paper investigates the implications of rupee circulation for monetary policy in Bhutan using the money multiplier framework and evaluates the impact of the "outside" rupee, e.g., Indian currency held within the borders of Bhutan but remaining outside of Bhutan's banking system. The conclusion that emerges is that Bhutan's monetary authorities should continue their efforts on financial sector development since that will gradually lead to absorption of the Indian rupee into the country's financial system and thereby strengthen the link between monetary variables and economic activities.

Keywords: Asia; Bhutan; monetary policy; exchange rates; banking (search for similar items in EconPapers)
Pages: 17 pages
Date: 2001-12
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Published in Discussion paper series (2001), 77: 1-17

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Persistent link: https://EconPapers.repec.org/RePEc:ota:busdis:10252/4263

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