Nepal's Prime Minister Pushpa Kamal Dahal called his Indian counterpart Narendra Modi on Tuesday to find out how Nepalis could exchange Indian rupees they hold in the now banned denominations.
The two countries share a long border and close cultural ties, and many Nepalis hold large amounts of cash in Indian rupees.
They have been left in the lurch after Modi's surprise announcement last week to withdraw the two largest denomination notes from circulation in a bid to tackle corruption and tax evasion.
"Our prime minister called Prime Minister Narendra Modi Monday evening and requested him to arrange exchange facility of the notes in Nepal," press adviser to the prime minister, Govinda Acharya, told AFP.
"Prime Minister Modi was positive about easing the situation and our finance ministers are already in conversation."
Nepal's Central Bank said that banks in Nepal hold around 33.6mn Indian rupees ($496,000) in the now banned 500 and 1,000 bills but it is not clear how much is kept by individuals.
Local media reported scenes of panic in border towns, where traders and pilgrims regularly move between the two countries.
There were also reports of retired Gurkhas, who served in the Indian army and have bank accounts in the country, being paid by desperate Nepalis to exchange their banned notes.
"There is a sense of panic within the public and we reached out to the Reserve Bank of India with our details five days ago," said Nepal central bank spokesman Narayan Prasad Poudel.
"However, we have not yet received a response on how to manage the exchange."
In India, people can deposit their 500 and 1,000 notes into their bank accounts or exchange them for new notes until the end of the year, but huge queues and a shortage of cash has hampered the process.