Nepal's history is usually told through kings and wars. Less visible, but just as decisive, is that the country sat astride the only practical trade corridor between the Gangetic plains and Tibet — and that geography shaped everything from why the Malla kings grew rich, to why Kathmandu went to war with Tibet in 1788, to why the closing of a border in the 1950s ended a merchant tradition eight centuries old.
The valley’s wealth for most of its recorded history came from sitting on the one low-altitude route between India and Tibet. Licchavi kings were already taxing it by the early seventh century — Amshuverma’s surviving inscriptions on tolls and trade are the fullest record of his government — and when Narendradeva recovered the throne in 643 with Tibetan backing, reopening the route was one of his first acts.
The trade took its lasting shape under the Malla kings. Pratap Malla’s 1650 settlement with Lhasa gave Kathmandu merchants thirty-two trading houses in the Tibetan capital, a near-monopoly on the India–Tibet trade, and — unusually for a foreign merchant community — the right to mint Tibet’s own silver coinage. Newar traders, chiefly from a handful of Kathmandu merchant families (Tuladhar, Shakya, Shrestha and others), settled in Lhasa for years at a stretch, some marrying into Tibetan families, and built a trading network that reached from Kolkata through Kalimpong to the Tibetan plateau. It was Nepal’s single largest source of state and merchant wealth for a century.
That monopoly on minting is also what ended in war. Nepal debased the coinage it supplied to Tibet, Lhasa refused to accept it at face value, and the dispute over money and the salt trade sent Gorkhali forces over the passes in 1788 — the war that dragged the Qing empire into Nepal’s affairs for the first and only time.
The trade outlived that war by a century and a half, surviving the British opening of the Sikkim route (which diverted some traffic but never replaced Kathmandu’s) and the founding of a rival transit treaty regime with British India in 1801. What it did not survive was the People’s Republic of China’s absorption of Tibet: China annexed Tibet in 1950, and border closures and the nationalization of Tibetan trade through the mid-1950s expelled the resident Newar merchant community and silenced a route that had run, with interruptions, since the seventh century. It did not meaningfully reopen until China’s economic reforms of the 1980s, and never on the same terms.
Nepal minted its own money for nearly three centuries before adopting the currency it uses today. The mohar — struck in silver, gold and copper, and for most of its life subdivided into a non-decimal 128 dams — was the kingdom's currency from the mid-seventeenth century, predating Gorkha's conquest of the valley, through the Shah and Rana eras alike. Malla-era mints in Kathmandu, Patan, Bhaktapur and elsewhere struck their own mohars even while the three courts warred over everything else, and it was this coinage — specifically its debasement — that triggered the 1788 war with Tibet described above.
The currency was only decimalized in 1903, when the silver mohar was fixed at fifty paisa, and in 1932 Nepal moved to the rupee proper, at an exchange rate of two mohars to one rupee. Paper currency existed before any central bank did: notes issued under King Tribhuvan from the mid-1940s were signed not by a bank governor but by the Kajanchi, the treasury's high-priest-official, since no Nepal Rastra Bank yet existed to issue them. The bank itself was established by the Nepal Rastra Bank Act of 1955 and opened its doors on 26 April 1956, taking over currency issuance from the treasury a few years later. Since 1994 the Nepali rupee has been formally pegged to the Indian rupee, at 1.6 Nepali rupees to one Indian rupee — a fixed relationship that leaves Nepal's monetary policy closely bound to decisions made in Delhi.
With the Tibet trade gone, Nepal’s economy became almost entirely dependent on its southern neighbor — a dependency written into the 1950 Treaty of Peace and Friendship, which opened the border to free movement and trade, and tested twice since: when India let the trade and transit treaties lapse in 1989, closing all but two border crossings and helping trigger the movement that ended Panchayat rule the following year, and again when the 2015 border blockade cut fuel, cooking gas and medicine for nearly five months just as the country was recovering from that year’s earthquake.
The trade route that once defined the economy has been replaced by a different cross-border flow: remittances from Nepalis working abroad, chiefly in India and the Gulf states, which by the mid-2020s made up roughly a quarter of national GDP — among the highest shares of any economy in the world — alongside tourism, whose collapse during the 2020 pandemic lockdowns showed how little else the economy has to fall back on when both pillars falter at once.