Nepal, March 3 -- Nepal's economic story is premised on a script heavily shaped by our neighbourhood. Geography, trade patterns and political history are structural features of the Nepali economy. Perhaps nowhere is this reality more obvious than in the quiet but consequential matter of the Nepal-India currency exchange rate peg.

This peg has been around since the 1960s and has been revised multiple times, usually in response to balance-of-payments stress or exchange-rate misalignments. Over the years, the peg has settled at Rs1.6 per INR1, becoming something of an anchor for traders, bankers and households who instinctively benchmark value in relation to India.

As Nepal grapples with pressure from rising import costs, a stubborn curren...