Currency is Bhutan is the Ngultrum which is at par with the Indian Rupee. Indian rupees can be used freely throughout Bhutan and may be generally given as change. Denominations up to Rupees 500 are accepted throughout Bhutan.
There are no coins, and you can expect to be handed wads of cash. Bhutan is a cash economy. Credit cards are not accepted in smaller shops, but bigger shops and some hotels will accept them. It is always better to ask the manager before you make any purchases.
It is best if you exchange the cash into ngultrums at the airport before you begin your Bhutan trip. The exchange rate is the same as in the banks in town. But banks are much harder to find outside the capital. You can also change your money at the hotels in Thimphu, but the rate is not as good.
Outside of the capital, the smaller towns and villages run only on cash. There might be hardly any ATMs there. So it is best to carry required cash with you while on tour in the interiors.