(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
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.