(GIST OF YOJANA) Legal Tender Money

Denomination of a country's currency by law, must be accepted as a medium of exchange and payment for a money debt. While usually all denominations of the circulating paper money are legal tenders, the denomination and amount in coins acceptable as legal tender varies from country to country. This is also called lawful money.

The legal tender money is of two types:

(i) Limited Legal Tender Money: This is a form of money, which can be paid in discharge of a debt up to a certain limit and beyond this limit, a person may refuse to accept the payment and no legal action can be taken against. Coins are limited legal tender in India.

(ii) Unlimited Legal Tender Money: In this form of money, which can be paid in discharge of a debt of any amount. A person who refuses to accept this money a legal action can be taken against. Paper notes/currency are unlimited legal tender in India.

The 'Legal tender' is the money that is recognised by the law of the land, as valid for payment of debt. It must be accepted for discharge of debt. The RBI Act of 1934, which gives the Central Bank the sole right to issue bank notes, states that "Every bank note shall be legal tender at any place in India in payment for the amount expressed therein".

The recognition or cancellation of the legal tender status is important because paper money derives all its value from the Government's recognition of it. Also, for a piece of paper to function as a: medium or exchange and store of value, it needs to enjoy unquestioning acceptance from the public. This can only be ensured by declaring such paper currency notes as 'legal tender' through a fiat, with the RBI or the Centre promising to 'pay the bearer' an equivalent sum if the currency note is presented to them.

Non-Legal Tender-Money: It is a form of money, which is generally accepted, but legally is not bound to accept it. Such as cheques, bank drafts, bills of exchange, postal orders etc. are not legal tenders and are accepted only at the option of the creditor, lender, or seller. It is also called the optional money because it does not have legal backing and their acceptance is optional.

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Courtesy: Yojana