Legal tender status of currency
Context:
- THE RESERVE Bank of India (RBI) Friday announced the withdrawal of its highest value currency note, Rs 2,000, from circulation, adding that the notes will continue to be legal tender.
- It said the existing Rs 2,000 notes can be deposited or exchanged in banks until September 30, but set a limit of “Rs 20,000 at a time”.
Legal tender:
- Legal tender is the legally recognized money within a given political jurisdiction.
- Legal tender laws effectively prevent the use of anything other than the existing legal tender as money in the economy.
- Legal tender serves the economic functions of money plus a few additional functions, such as making monetary policy and currency manipulation possible.
- Creditors are lawfully responsible for accepting legal tender for the repayment of debt that they have availed.
- Legal tender is constitutioned by a law that specifies the object to be utilised as legal tender and the organisation that is commissioned to create and issue the same to the public such as the Reserve Bank of India.
- In India, the authentic legal tender of the Reserve Bank of India consists of coins and notes.
Who Regulates the Printing of Money in India?
- Before 1934, the government of India had the responsibility of printing money.
- However, RBI was granted its role in currency management on the basis of the Reserve Bank of India Act in 1934.
- Specifically, Section 22 of the RBI Act gives the bank the authority to issue currency notes.
- The Reserve Bank of India has printing facilities in Dewas, Mysore, and Salboni.
- The Reserve Bank of India (RBI) prints and manages currency in India, whereas the Indian government regulates what denominations to circulate.
- The Indian government is solely responsible for minting coins.
- The RBI is permitted to print currency up to 10,000 rupee notes.
- If the Reserve Bank wants to print anything higher, the government must amend the Reserve Bank of India Act.
- To deter counterfeiting and fraud, the Indian government withdrew the 500 and 1,000 rupee notes from circulation in 2016.
What About Coins?
- While the Reserve Bank of India prints currency, the government of India directly handles the minting of coins.
- Coins are minted at the four mints: Alipore in South Kolkata, Saifabad in Hyderabad, Cherlapally in Hyderabad, and Noida in Uttar Pradesh.
- Although the government handles minting coins, the Reserve Bank issues them for circulation.
Syllabus: Prelims; Economy
