Legal Tender | Banknotes | Coins | Currency of India



What is meant by Legal tender? (tender=offer): Any official medium of payment recognized by law. A creditor (~predator) is obligated to accept legal tender toward repayment of a debt.

The Indian rupee (INR) is legal tender in Nepal, Bhutan & Zimbabwe, but the Nepalese rupee and Bhutanese ngultrum are not legal tenders in India (Zimbabwean $ has been suspended by Govt due to hyperinflation).

Nepalese rupee's value was pegged to the INR in 1993 at a rate of 1.6 Nepalese Rs = 1 INR. Bhutanese ngultrum is pegged at par with Indian rupee.


What would you prefer as payment - legal tender or not-a-legal-tender?
Bitcoin is a virtual online currency that can be used for a growing number of transactions but its not considered legal tender anywhere. As INR is guaranteed by Indian Central Govt (s/26 RBI Act) it is more stable & accepted by all. (Do you've a right to recover from GOI/RBI value of a lost, stolen, imperfect note?)


Can you guess how much stamp duty does RBI pay to Govt on banknotes?
Well each note is a 'legal-note' & have a value attached to it but RBI pay nothing to govt for it to make legally binding on itself or Govt, as its exempted from paying stamp duty under s/29 RBI Act (Not under Indian Stamp Act).


Do shops or individuals have the right to refuse payment in coins or notes, even legal tender ones?

Contrary to popular belief, shops or individuals do have the right to refuse payment in coins or notes, even legal tender ones, before a transaction has taken place, and to demand payment in whatever form they choose.

However, when the debt has already been incurred (which, under the legal concept of 'invitation to treat' the vendor has already supplied a good or service prior to payment), then they are obliged to accept settlement of that debt in currency up to the amount authorized in law.

1 Rupee coin & notes are legal tender for unlimited amounts. 50 Paisa are legal tender for any sum not above Rs 10. Coins of smaller than 50 paisa value are legal tenders of a sum below Rs 1. (under Indian Coinage Act 1906).

So if you want to purchase 1 toffee of Rupee one with One Thousand rupee note, then shopkeeper can refuse accepting the 'legal tender'. Same way if you've had good meal at a restaurant & now want to pay them in 1 rupee coins then they can't refuse it - as you've already accepted their service - and 1 rupee coins are legal tender for unlimited amounts.


Legal Tender of India
The Indian rupee i.e INR is the only legal tender in India,

Its symbol was officially adopted in 2010. The first series of notes/coins with the rupee symbol was launched on 2011. Historically, the rupee (derived from the Sanskrit word raupya which means "wrought silver, a coin of silver"), was a silver coin.

RBI introduced "Mahatma Gandhi Series" banknotes on 1996 - it's called so because on the obverse there is a pic of Mahatma Gandhi (along with other features).
 A Mahatma Gandhi Series Note

A Pre Mahatma Gandhi series note - Ashoka emblem


Currency Management in India
Under s/22 of RBI Act; RBI has the sole right for issue of notes in India. Denomination of notes that are issued: 5,10,20,50, 100, 500, 1000. The design, form and material of the bank notes are recommended by Central Board of Directors of RBI and approved by GOI.

Like every country India's central bank - RBI looks after currency management. Interestingly Hong Kong, Scotland & Northern Ireland are exceptions where a commercial bank is the note issuing authority.

Can banknotes be issued only in some specific denominations?
Not necessarily. RBI can issue notes of 5000, 10000 or any other denomination that the Central Government may specify, but not greater than 10000.


COINS
Indian coins have a different story. GoI has the sole right to mint coins  (NOT RBI), [not higher than Rs 100/-]. The dimensions, designs, composition, weights of coins are also responsibility of GoI (Indian Coinage Act).

One Rupee note is issued by Min. of Finance & bears sign of Finance Secretary.

The coins are issued for circulation only through RBI in terms of the RBI Act. The RBI places an annual indent for this purpose and GoI draws up the production programme for the 'India Government Mints' on the basis of the indent. The 'India-Govt-Mints' are at Mumbai, Alipore(Kolkata), saifabad(Hyderabad), Cherlapally (Hyderabad) and NOIDA (UP).


How does the currency reach to the people?
Notes are printed at 4 presses: Dewas(MP), Nasik (Maharashtra), Mysore (AP) & Salboni (WB) & coins at above centers. All the notes/coins travel by way of Rail/ Spl trucks accompanied by heavy Police force to RBI Offices & then to Currency chest branches (of your banks). Journey from these chest branches to individual non-chest neighborhood branch is carried out by the bank concerned.

Network of Notes Presses & Mints

Flow of new printed currency

All this involves heavy use of security, logistics, coordination & the cost of transferring to banks is borne by RBI.

What happened to torn, defaced, dirty currency?
Soiled notes (dirty, limp due to excessive use) & Mutilated notes (torn, disfigured, burnt, eaten by white ants, washed etc) are taken out of circulation. If you deposit such notes across counters in banks then they are kept separately from good notes & sent to RBI. RBI has statutory obligation to not to re-issue such torn, deface notes to public (s/27 of RBI Act).

Where do banks hoard currency?

Currency chests are stores where stocks of banknotes & coins are kept by banks on behalf of RBI. Its an extended arm of Issue Department. All PSU banks, 1 foreign bank (Stan Chart), 1 State Co-op bank (Rajasthan State Coop bank), 1 Regional Rural bank (Prathama Bank, Moradabad) have these chest branches. RBI has 1 Currency chest in Kochi.


How RBI oversees currency management function?
Issue Department
RBI has 2 major symbolic Depts a) Issue Dept & b) Banking dept.  Issue dept as name suggests oversees only currency issuance business of RBI and Banking dept deals with the banking system. The difference is just symbolic anyways as there are large linkages between the two.

This dept is given statutory role by RBI Act to manage currency.

"Department of Currency Management" in RBI attends to the core statutory function of note and coin issue and currency management. This dept do the forecasting the demand for fresh banknotes & coins, placing indent, receiving supplies & distributing them through network of currency chests.