The Mystery Of The Kathmandu Black Market Revealed
Of Gold, Touts, and Arbitrage
I promised to explain the former currency black market in Kathmandu, which has baffled many travelers and writers who are otherwise quite familiar with Nepal.
So today, after some four decades, I finally sat down to write it.
It was 1985, and I was flying out of Kathmandu. In the seat beside me was a young woman, perhaps in her early twenties, although it was hard to tell as she was clearly in poor health. She was extremely pale and thin. There were dark circles below her eyes, above her hollow cheeks. During the flight, she told me her story.
She had been recruited as a gold smuggling mule in Hong Kong. At that time, the internal price of gold in India was roughly twice that quoted on international exchanges. Consequently, some people were making money in arbitrage. But there were also stiff penalties for smuggling gold into India or its immediate neighbor, Nepal.
I heard that the authorities had busted a number of gold couriers the previous year after a metal detector was installed at the Kathmandu airport. She was one of those.
The young woman’s deal with her Hong Kong employers was that they would pay the baksheesh (bribe) to get her out if she got caught. The gold she was carrying was worth $50,000, and the authorities expected an equivalent amount of bribe money to let her go. They let her get in touch with her employer, who decided the price was too high and cut her loose. She was sentenced to 6 years.
She told me about the horrific conditions she endured in her prison cell. During the monsoons, it flooded regularly. There were rats and insects. She contracted several diseases, including hepatitis. After sixteen months of imprisonment, her friends raised $20,000 in bribe money, and they released her. She was on her way home to Switzerland but told me her long-term health prospects didn’t look good. She felt she was dying.
Turning Rupees to Gold
The Nepali and Indian rupees were not hard currencies that could be exchanged in the open market. Therefore, the rupees that were used to pay for the gold in Nepal and India were worthless outside of those countries' borders.
Hence, a black market exchange was necessary, and that worked like this: Say you were a tourist arriving in Kathmandu. You would quickly be approached on the street by numerous touts with the loud whisper, “Change money, buy hashish?”
“Yes, change money,” you could reply. Then, the tout would take you through a maze of alleys until you arrived at the exchange station. Here, you could exchange your hard currency, US dollars, Canadian dollars, or Swiss Francs, for Nepali rupees. I have also purchased Indian rupees in Kathmandu, although taking them across the border was illegal. The black market exchange rate was considerably more generous than the official rate. Traveler’s cheques (remember those) could be exchanged too, for a slightly lower rate, conditional on showing a passport. If the tourists were clever, they would only exchange a relatively small amount on this first visit. The next time, remembering the way to the exchange station, they could go directly there and cut out the tout middleman to receive a better rate.
This hard currency was taken to Hong Kong, where it was used to buy gold and then carried to Nepal by tourists recruited for that purpose. The gold was then sold in India high above world market prices. The Indian rupees were then exchanged for Nepali rupees, which ended up at the back alley exchange stations, and the cycle would begin over again.
The T-shirt
I spent three months trekking in the mountains of Nepal in 1985, with several interludes in Kathmandu. Several times on every block in Kathmandu’s Thamal and Freak Street areas, I would have touts approach me with the familiar, “Change money, buy hashish?”
Kathmandu is well known for its numerous shops with machines that can do stock or custom embroidery featuring logos, sayings, or images on T-shirts or jackets. I went to one of these shops and asked the proprietor, “Can you make me a T-shirt embroidered with this in Devanagari script? And I handed him a piece of paper. He laughed and nodded his head. He had my shirt ready later in the day. I put it on right away and wore it out on the street. The reaction was immediate. Locals smiled or outright burst out laughing. The touts laughed. Even the police laughed. Tourists stopped me and asked what my shirt said that was causing such hilarity.
The next day, I went back to the shop and told the proprietor that there was a lot of interest among tourists in my shirt. They would like to get one for a souvenir with an English translation as well as the Devanagari script. I asked if he would give me a five rupee commission for every shirt if I sent customers his way. He agreed.
When I returned to Kathmandu after my next trek, my last that year, I went to the shop, and the owner had a little bag of money for me.
Four years later, when I next visited Kathmandu. Every souvenir and embroidery shop featured a shirt that said, usually in English and Devanagari, “ I don’t want to change money or buy Hashish,”
India no longer isolates itself from the world market, so gold no longer sells for a significant premium. The black market for Nepali rupees is a ghost of its former self, so you won’t find my shirt in the shops, although there may still be some scattered across the globe, kept as souvenirs, by travelers who visited Nepal in those now-distant times.