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Q46 (IAS/2018) Economy › Money, Banking & Inflation › Monetary aggregates Official Key

Which one of the following statements correctly describes the meaning of legal tender money ?

Result
Your answer: —  ·  Correct: B
Explanation

Legal tender is the officially recognized money that a country or jurisdiction must accept for settling debts and financial obligations within its borders.[1] More specifically, it is the legally recognized medium for settling debts, taxes, and other financial obligations within a country, usually its national currency, which creditors must accept as payment.[2] Currency notes and coins are called legal tenders as they cannot be refused by any citizen of the country for settlement of any kind of transaction.[3] In India, the law legalizes the use of rupee as a medium of payment that cannot be refused in settling transactions in India, and no individual in India can legally refuse a payment made in rupees.[4]

Option A is incorrect as legal tender has nothing to do with court fees. Option C is wrong because cheques drawn on savings or current accounts can be refused by anyone as a mode of payment, and hence demand deposits are not legal tenders.[3] Option D is too narrow, as legal tender includes both currency notes and coins, not just metallic money.

Sources
  1. [1] https://www.investopedia.com/terms/l/legal-tender.asp
  2. [2] https://www.investopedia.com/terms/l/legal-tender.asp
  3. [3] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > THE SUPPLY OF MONEY : VARIOUS MEASURES > p. 48
  4. [4] Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > Currency > p. 39
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Q. Which one of the following statements correctly describes the meaning of legal tender money ? [A] The money which is tendered in courts …
At a glance
Origin: Books + Current Affairs Fairness: Low / Borderline fairness Books / CA: 2.5/10 · 7.5/10

This is a textbook 'Sitter' directly from NCERT Class XII Macroeconomics. It tests the fundamental definition of money, specifically distinguishing 'Legal Tender' (compulsory) from 'Fiduciary Money' (trust-based like cheques). If you missed this, you are skimming NCERTs rather than understanding them.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Is legal tender money defined as money which is tendered in courts of law to defray the fee of legal cases?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
"Legal tender is the officially recognized money that a country or jurisdiction must accept for settling debts and financial obligations within its borders."
Why this source?
  • Provides a direct definition of legal tender as the money a jurisdiction must accept to settle debts and financial obligations, not limited to court fees.
  • Explicitly ties legal tender to settling debts and obligations within a country, contradicting the narrow court-fee definition in the statement.
Web source
Presence: 5/5
"Any official medium of payment recognized by law that can be used to extinguish a public or private debt or meet a financial obligation."
Why this source?
  • Defines legal tender as an official medium of payment used to extinguish public or private debt or meet financial obligations.
  • Shows legal tender's scope is broader (debts/financial obligations) than merely being money tendered in courts for fees.
Web source
Presence: 4/5
"Virtual currencies do not meet any of the features that characterise a legal tender: when tendered to a creditor, they are not widely recognised as a valid and legal offer of payment,"
Why this source?
  • Explains the concept of 'tendered to a creditor' as the context in which legal tender functions, emphasizing creditor acceptance rather than court fees.
  • Contrasts legal tender with virtual currencies which are not 'widely recognised as a valid and legal offer of payment' when tendered to a creditor, reinforcing the debt-payment definition.

Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > THE SUPPLY OF MONEY : VARIOUS MEASURES > p. 48
Strength: 5/5
“giving the person purchasing power equal to the value printed on the note. The same is also true of coins. Currency notes and coins are therefore called fiat money. They do not have intrinsic value like a gold or silver coin. They are also called legal tenders as they cannot be refused by any citizen of the country for settlement of any kind of transaction. Cheques drawn on savings or current accounts, however, can be refused by anyone as a mode of payment. Hence, demand deposits are not legal tenders.”
Why relevant

States that currency notes and coins are called legal tenders because they cannot be refused by any citizen for settlement of any kind of transaction.

How to extend

A student could contrast 'tendered in courts to defray fees' with this broader rule that legal tender means acceptance for settlement of debts/transactions, not a court-fee-specific meaning.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
Strength: 5/5
“The same is also true for coins. Currency notes and coins do not have intrinsic value i.e., the piece of paper in case of rupee note or the iron in case of coin does not have the value of the material but it derives its value from the promise of RBI. Currency notes and coins are therefore called fiat money. They are also called legal tenders as they cannot be refused by any citizen of the country for payment/discharge of debt (For example: Is an autowallah obliged to accept your currency note for a ride? Not necessarily! If you are yet to get into the auto, the autowallah can turn you down despite it being a legal tender.”
Why relevant

Explains legal tender as currency that cannot be refused for payment/discharge of debt and gives an example where acceptance may still be context-dependent.

How to extend

Use the general rule that legal tender settles debts to judge whether a court-fee-only definition fits the established meaning (it does not).

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > MONEY > p. 158
Strength: 4/5
“Definition of Money: Money is anything that is proclaimed by law as a medium of exchange, such as paper notes and coins. Notes and coins are also called fiat money, as it commands the order/authority of the government. According to Crowther, 'Money can be defined as anything that is generally accepted as a means of exchange and, at the same time, acts as a measure and as a store of value'. Fiat Money - The money which does not have any intrinsic value is called fiat money. For example, the value of currency notes and coins is not based on its production cost but is derived from the face value or guarantee provided by the issuing authority to the bearer of that currency or coin.”
Why relevant

Defines money/fiat money and notes that currency is proclaimed by law as a medium of exchange, implying legal tender status relates to medium of exchange and debt settlement.

How to extend

Apply this definition to infer legal tender refers to legally sanctioned medium for transactions broadly, not just court fee payments.

Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > Currency > p. 39
Strength: 5/5
“As per Indian law, no other individual or organisation is allowed to issue currency. Moreover, the law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India. No individual in India can legally refuse a payment made in rupees. Hence, the rupee is widely accepted as a medium of exchange.”
Why relevant

Says law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India.

How to extend

A student could combine this statutory note with the court-fee claim and see the latter is a narrow instance, so the definition in the statement is likely incomplete or misleading.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > 2018 > p. 248
Strength: 3/5
“Which one of the following statements correctly describes the meaning of legal tender money? (a) The money which is tendered in courts of law to defray the fee of legal cases. (b) The money which a creditor is under compulsion to accept in settlement of his claims. (c) The bank money in the form of cheques, drafts, bills of exchange, etc. (d) The metallic money in circulation in a country. Which of the statements given above is/are correct? (b) 3 only (a) 1 and 2 only (d) 1, 2 and 3 (c) 2 and 3 only 18. With reference to the governance of public sector banking in India, consider the following statements:”
Why relevant

Presents an MCQ option exactly matching the questioned definition (money tendered in courts to defray legal fees), implicitly treating it as a possible but contestable meaning.

How to extend

Compare this distractor option against authoritative definitions in other snippets to eliminate the court-fee-only definition.

Statement 2
Is legal tender money defined as money which a creditor is under compulsion to accept in settlement of his claims?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > THE SUPPLY OF MONEY : VARIOUS MEASURES > p. 48
Presence: 5/5
“giving the person purchasing power equal to the value printed on the note. The same is also true of coins. Currency notes and coins are therefore called fiat money. They do not have intrinsic value like a gold or silver coin. They are also called legal tenders as they cannot be refused by any citizen of the country for settlement of any kind of transaction. Cheques drawn on savings or current accounts, however, can be refused by anyone as a mode of payment. Hence, demand deposits are not legal tenders.”
Why this source?
  • Explicitly states currency notes and coins are called legal tenders because they cannot be refused by any citizen for settlement of any kind of transaction.
  • Contrasts legal tender with cheques/demand deposits which can be refused, clarifying the compulsory-acceptance aspect for settlement.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
Presence: 5/5
“The same is also true for coins. Currency notes and coins do not have intrinsic value i.e., the piece of paper in case of rupee note or the iron in case of coin does not have the value of the material but it derives its value from the promise of RBI. Currency notes and coins are therefore called fiat money. They are also called legal tenders as they cannot be refused by any citizen of the country for payment/discharge of debt (For example: Is an autowallah obliged to accept your currency note for a ride? Not necessarily! If you are yet to get into the auto, the autowallah can turn you down despite it being a legal tender.”
Why this source?
  • Defines currency notes and coins as legal tender and says they cannot be refused for payment/discharge of debt, aligning with the notion of creditor compulsion.
  • Provides a pragmatic caveat/example (autowallah) that clarifies contexts where acceptance may not be obligatory, reinforcing the legal-definition core.
Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > Currency > p. 39
Presence: 5/5
“As per Indian law, no other individual or organisation is allowed to issue currency. Moreover, the law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India. No individual in India can legally refuse a payment made in rupees. Hence, the rupee is widely accepted as a medium of exchange.”
Why this source?
  • States that law legalises the rupee as a medium of payment that cannot be refused in settling transactions in India.
  • Affirms that no individual can legally refuse a payment made in rupees, directly supporting the 'compulsion to accept' formulation.
Statement 3
Is legal tender money defined as bank money in the form of cheques, drafts, bills of exchange, etc.?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
"Legal tender is the officially recognized money that a country or jurisdiction must accept for settling debts and financial obligations within its borders. ... Legal tender is the legally recognized medium for settling debts, taxes, and other financial obligations within a country, usually its national currency, which creditors must accept as payment."
Why this source?
  • Explicitly defines legal tender as the officially recognized money used to settle debts and financial obligations.
  • Specifies that legal tender is usually the national currency, implying it is not defined as bank instruments like cheques or drafts.
Web source
Presence: 4/5
"* National currencies generally serve as the legal tender in their respective countries. ... * Credit cards and checks in the U.S. are based on the dollar, but cryptocurrencies are not recognized as legal"
Why this source?
  • States that national currencies generally serve as legal tender in their respective countries.
  • Notes that credit cards and checks are "based on the dollar," indicating they are instruments tied to the currency rather than being the legal tender themselves.
Web source
Presence: 4/5
"purchases, sells, discounts, or negotiates accounts receivable, instalment obligations, notes, drafts, checks, bills of exchange, acceptances, or other evidences of indebtedness;"
Why this source?
  • Lists drafts, checks, bills of exchange and similar items as evidences of indebtedness or banking activities.
  • Shows that cheques, drafts and bills are bank instruments (bank money), distinct in description from legal tender as defined elsewhere.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
Strength: 5/5
“But once you make the trip, and you have incurred a debt, he cannot refuse to take your currency note.). But cheques can be refused by anyone as a payment mode and are hence not legal tenders. Currency = Notes + Coins Currency in Circulation = Currency with the Public + Currency with the banks The total stock of money in circulation among the public at a particular point of time is called money supply. So, money supply is money of the public either in cash form or in deposit form. RBI publishes figures for four alternative measures of money supply.”
Why relevant

Explicitly states that cheques can be refused as a payment mode and are hence not legal tenders.

How to extend

A student could generalize that instruments refusible on presentation (e.g., cheques) are unlikely to meet the definition of legal tender and so would question classifying bank money as legal tender.

Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > THE SUPPLY OF MONEY : VARIOUS MEASURES > p. 48
Strength: 5/5
“giving the person purchasing power equal to the value printed on the note. The same is also true of coins. Currency notes and coins are therefore called fiat money. They do not have intrinsic value like a gold or silver coin. They are also called legal tenders as they cannot be refused by any citizen of the country for settlement of any kind of transaction. Cheques drawn on savings or current accounts, however, can be refused by anyone as a mode of payment. Hence, demand deposits are not legal tenders.”
Why relevant

Defines currency notes and coins as fiat money and calls them legal tenders, while also noting cheques can be refused and are not legal tenders.

How to extend

Use the contrast (notes/coins = legal tender vs. cheques ≠ legal tender) to infer that bank instruments are treated differently from currency under legal-tender rules.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > MONEY > p. 158
Strength: 4/5
“Definition of Money: Money is anything that is proclaimed by law as a medium of exchange, such as paper notes and coins. Notes and coins are also called fiat money, as it commands the order/authority of the government. According to Crowther, 'Money can be defined as anything that is generally accepted as a means of exchange and, at the same time, acts as a measure and as a store of value'. Fiat Money - The money which does not have any intrinsic value is called fiat money. For example, the value of currency notes and coins is not based on its production cost but is derived from the face value or guarantee provided by the issuing authority to the bearer of that currency or coin.”
Why relevant

Defines money as anything proclaimed by law as a medium of exchange (notes and coins) and describes fiat money (notes/coins) as government-backed legal tender.

How to extend

A student could combine this legal/fiat emphasis with the refusability of cheques to deduce that legal tender status is tied to government-issued currency rather than private bank instruments.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What is Central Bank Digital Currencies (e-Rupee)? > p. 78
Strength: 4/5
“• E-Rupee is a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is no different from cash and is exchangeable one-to-one with the fiat currency (bank notes/cash) at par. Only its form is different i.e., digital.• RBI recently launched e-Rupee on pilot basis for Wholesale and retail markets.• RBI Act 1934 has been amended to include e-rupee in 'bank note' and now it's a legal tender.”
Why relevant

States that e-Rupee is a legal tender issued by the central bank and is the same as cash, linking legal tender specifically to central-bank-issued currency (including digital form).

How to extend

A student could extend this to test whether only central-bank-issued instruments (not private bank payment orders like cheques) qualify as legal tender.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > NEGOTIABLE INSTRUMENTS > p. 194
Strength: 3/5
“A Negotiable Instrument is a promissory note, bill of exchange or cheque payable either to order or to bearer. Negotiable Instrument Act, 1881, defines promissory notes, bills of exchange, cheques, drawer, holder, etc. It specifies penalties for bouncing of cheques and other violations with respect to such negotiable instruments.”
Why relevant

Defines cheques, bills of exchange and promissory notes as negotiable instruments governed by specific law, implying a distinct legal treatment from currency/legal tender.

How to extend

A student could use the existence of separate legal regulation for negotiable instruments to argue they are categorized differently from legal tender and so need not be defined as such.

Statement 4
Is legal tender money defined as the metallic money in circulation in a country?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
"Legal tender is the officially recognized money that a country or jurisdiction must accept for settling debts and financial obligations within its borders. ... Legal tender is the legally recognized medium for settling debts, taxes, and other financial obligations within a country, usually its national currency"
Why this source?
  • Defines legal tender as the officially recognized medium that must be accepted for settling debts and financial obligations — typically the national currency, not limited to metal coins.
  • Shows legal tender is a legal status of a country's money rather than a narrow definition tied to metallic form.
Web source
Presence: 4/5
"Types of Legal Tender and Their Characteristics ----------------------------------------------- Legal tender generally comes in two forms: governments may accept commodity money like gold for taxes and"
Why this source?
  • States that legal tender can take the form of commodity money (e.g., gold), indicating metallic money can be legal tender but is only one possible form.
  • Implies legal tender is a category that includes, but is not limited to, metallic/commodity money.
Web source
Presence: 4/5
"digital currencies like Bitcoin and some government-backed experiments are testing new forms of legal tender. ### Key Takeaways * Legal tender is officially recognized by law and must be accepted to settle debts and financial obligations. * National currencies generally serve as the legal tender in their respective countries."
Why this source?
  • Notes that digital currencies like Bitcoin have been tested/accepted as legal tender, showing legal tender extends beyond metallic forms.
  • Provides an example (El Salvador) where non-metallic digital currency was adopted as legal tender, reinforcing that legal tender is not defined solely as metallic money.

Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > THE SUPPLY OF MONEY : VARIOUS MEASURES > p. 48
Strength: 5/5
“giving the person purchasing power equal to the value printed on the note. The same is also true of coins. Currency notes and coins are therefore called fiat money. They do not have intrinsic value like a gold or silver coin. They are also called legal tenders as they cannot be refused by any citizen of the country for settlement of any kind of transaction. Cheques drawn on savings or current accounts, however, can be refused by anyone as a mode of payment. Hence, demand deposits are not legal tenders.”
Why relevant

States that currency notes and coins are called legal tenders and explains both notes and coins cannot be refused for settlement.

How to extend

A student could extend this to suspect legal tender is not limited to metallic (coins) but also includes paper notes, so 'metallic only' is likely false.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 53
Strength: 4/5
“In an economy, money consists of mainly currency notes, coins and deposits of public in banks. In India coins and currency notes are issued for circulation by the Reserve Bank of India (RBI), which is the monetary authority (or Central Bank) in India. One-rupee note and all coins and subsidiary coins, the magnitude of which is relatively small, are minted/printed by the Government of India, while all the other currency notes are printed by the RBI. All the currency notes and coins are put into circulation only through the RBI, which is the sole authority for the issue of currency and coins in India.”
Why relevant

Defines currency in an economy as notes, coins and bank deposits and notes that RBI issues coins and currency notes for circulation.

How to extend

Combine with the idea that currency (notes + coins) is legal tender to test the claim that legal tender equals only metallic money.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What is Central Bank Digital Currencies (e-Rupee)? > p. 78
Strength: 4/5
“• E-Rupee is a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is no different from cash and is exchangeable one-to-one with the fiat currency (bank notes/cash) at par. Only its form is different i.e., digital.• RBI recently launched e-Rupee on pilot basis for Wholesale and retail markets.• RBI Act 1934 has been amended to include e-rupee in 'bank note' and now it's a legal tender.”
Why relevant

Shows that e‑Rupee, a digital form issued by the central bank, is explicitly described as legal tender.

How to extend

Using this, a student could infer legal tender can be non‑metallic and even digital, undermining the 'metallic only' definition.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What are Crypto currencies? > p. 77
Strength: 3/5
“• Crypto currencies are a kind of assets like gold, silver on which Govt. does not have any control. As you may not be able to purchase vegetables in the market by paying in gold, in the same way you may not be able to purchase through crypto currencies too, but you can purchase through Rupee. So, in that sense crypto currencies are not a "currency" (the word is a misnomer). Gold/Crypto currencies are generally not accepted in transactions (they are not legal tender) but these are assets.”
Why relevant

Notes that assets like gold or crypto are generally not accepted in transactions and are not legal tender.

How to extend

A student could contrast metallic commodity money (gold) with government‑issued coins/notes to refine what 'metallic money' might mean and test if legal tender is restricted to metal.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > 2018 > p. 248
Strength: 2/5
“Which one of the following statements correctly describes the meaning of legal tender money? (a) The money which is tendered in courts of law to defray the fee of legal cases. (b) The money which a creditor is under compulsion to accept in settlement of his claims. (c) The bank money in the form of cheques, drafts, bills of exchange, etc. (d) The metallic money in circulation in a country. Which of the statements given above is/are correct? (b) 3 only (a) 1 and 2 only (d) 1, 2 and 3 (c) 2 and 3 only 18. With reference to the governance of public sector banking in India, consider the following statements:”
Why relevant

Presents a multiple‑choice option equating legal tender to 'metallic money in circulation', implying this is a contested or common alternative definition.

How to extend

A student could use this as an example of a proposed definition to be checked against authoritative descriptions (notes + coins + other forms).

Pattern takeaway: The exam sets 'Word Association Traps' for non-serious candidates. Option A links 'Legal Tender' to 'Legal Cases/Courts'. This is a linguistic trap. The pattern is: Technical Term = Specific Economic Definition, not literal English interpretation.
How you should have studied
  1. [THE VERDICT]: Sitter. Direct lift from NCERT Class XII Macroeconomics (Chapter 3: Money and Banking).
  2. [THE CONCEPTUAL TRIGGER]: The evolution of money: Barter → Commodity → Metallic → Fiat → Legal Tender → Digital.
  3. [THE HORIZONTAL EXPANSION]: Memorize the hierarchy: 1) Fiat Money (backed by order, no intrinsic value). 2) Fiduciary Money (Cheques/DDs, accepted on trust, can be refused). 3) Limited Legal Tender (Coins, legal only up to ₹1000). 4) Unlimited Legal Tender (Currency notes). 5) High Powered Money (Currency + Reserves).
  4. [THE STRATEGIC METACOGNITION]: UPSC Economy questions often target 'Definitions' (e.g., 'What is Devaluation?', 'What is Recession?'). When reading NCERTs, stop at every bold technical term and ensure you can define it in one sentence that distinguishes it from its close cousins.
Concept hooks from this question
📌 Adjacent topic to master
S1
👉 Definition and legal effect of 'legal tender'
💡 The insight

The references define legal tender as currency that cannot be refused for settlement/discharge of debts and is legally enforceable as a medium of payment — directly relevant to the statement's claim about court tendering.

High-yield: UPSC questions often ask precise legal/economic definitions (legal tender vs other monies). Mastering this helps answer questions on currency law, payments, demonetisation, and government receipts. It links to public finance, RBI functions and monetary policy. Prepare by memorising the legal effect (cannot be refused for settling transactions) and contrasting it with non-legal-tender instruments.

📚 Reading List :
  • Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > THE SUPPLY OF MONEY : VARIOUS MEASURES > p. 48
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
  • Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > Currency > p. 39
🔗 Anchor: "Is legal tender money defined as money which is tendered in courts of law to def..."
📌 Adjacent topic to master
S1
👉 Fiat money (currency notes & coins) as legal tender
💡 The insight

References state that currency notes and coins are fiat money and are called legal tenders — clarifies what kinds of money are legal tender.

High-yield: Distinguishing fiat money from commodity money is frequently tested and underpins questions on currency, demonetisation and central bank issuance. It connects to topics on money supply, RBI authority and currency acceptance in transactions. Learn textbook definitions and examples (notes, coins, e‑rupee).

📚 Reading List :
  • Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > THE SUPPLY OF MONEY : VARIOUS MEASURES > p. 48
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > MONEY > p. 158
🔗 Anchor: "Is legal tender money defined as money which is tendered in courts of law to def..."
📌 Adjacent topic to master
S1
👉 Bank/demand deposits vs legal tender (what is NOT legal tender)
💡 The insight

Evidence explicitly notes that cheques and demand deposits are not legal tender, contrasting legal tender with other payment forms — directly useful to refute the statement's narrow court‑tender claim.

High-yield: Many UPSC questions probe distinctions between types of money and payment instruments. Knowing which instruments are legal tender helps answer questions on settlement of debts, negotiable instruments, and payment law. Practice by comparing examples and legal implications.

📚 Reading List :
  • Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > THE SUPPLY OF MONEY : VARIOUS MEASURES > p. 48
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
🔗 Anchor: "Is legal tender money defined as money which is tendered in courts of law to def..."
📌 Adjacent topic to master
S2
👉 Legal tender — compulsory acceptance for settlement
💡 The insight

References define legal tender as currency that cannot be refused for settling transactions or discharging debts, which directly matches the statement's core idea.

High-yield for money and banking questions: distinguishes legally enforceable modes of payment from negotiable instruments; useful for MCQs and short-answer questions on debt discharge, payment law, and RBI functions. Master by comparing definitions and noting legal exceptions.

📚 Reading List :
  • Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > THE SUPPLY OF MONEY : VARIOUS MEASURES > p. 48
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
  • Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > Currency > p. 39
🔗 Anchor: "Is legal tender money defined as money which a creditor is under compulsion to a..."
📌 Adjacent topic to master
S2
👉 Legal tender vs bank money (demand deposits/cheques)
💡 The insight

Evidence contrasts legal tender (currency) with cheques and demand deposits, noting the latter can be refused and are therefore not legal tender.

Important for questions on money supply classification (narrow vs broad money), transaction media, and implications for payment systems; helps answer comparison and application questions about what constitutes 'money'.

📚 Reading List :
  • Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > THE SUPPLY OF MONEY : VARIOUS MEASURES > p. 48
  • Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > Cheque Payments > p. 40
🔗 Anchor: "Is legal tender money defined as money which a creditor is under compulsion to a..."
📌 Adjacent topic to master
S2
👉 Fiat money and issuing authority's promise
💡 The insight

References link legal tender status to fiat money — value derived from government/RBI promise rather than intrinsic value — explaining why currency is accepted by compulsion of law.

Useful for conceptual clarity on why notes/coins serve as legal tender; connects monetary theory (fiat money), central bank authority, and legal aspects of currency issuance — often tested in economy and governance sections.

📚 Reading List :
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > MONEY > p. 158
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
  • Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > Currency > p. 39
🔗 Anchor: "Is legal tender money defined as money which a creditor is under compulsion to a..."
📌 Adjacent topic to master
S3
👉 Legal tender vs bank money (cheques/demand deposits)
💡 The insight

References state that cheques/demand deposits can be refused as a payment mode and therefore are not legal tender.

High-yield for UPSC: questions often ask differences between forms of money, their legal status and implications for payments. Mastering this clarifies money supply classification and practical payment mechanics; helps answer questions on currency, deposits, and payment systems.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
  • Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > THE SUPPLY OF MONEY : VARIOUS MEASURES > p. 48
  • Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > Cheque Payments > p. 40
🔗 Anchor: "Is legal tender money defined as bank money in the form of cheques, drafts, bill..."
🌑 The Hidden Trap

The 'Limited Legal Tender' rule: Under the Coinage Act, 2011, coins of denomination ₹1 and above are legal tender for a sum not exceeding ₹1000. Coins below ₹1 (if any) are legal tender only up to ₹1. This is a potential 'statement-based' trap for the future.

⚡ Elimination Cheat Code

Use the 'Shopkeeper Test'. Can a shopkeeper refuse a cheque? Yes (so C is out). Can they refuse a paper note? No (so D is too narrow, as it says 'metallic'). Does 'Legal Tender' sound like a court fee or a monetary status? Option A is a 'Literal Translation Trap' (Legal = Courts). Option B is the only one describing the *power* of money.

🔗 Mains Connection

Link this to **CBDC (Central Bank Digital Currency)** in Mains GS-3. The e-Rupee is 'Legal Tender' (digital fiat), whereas Cryptocurrency is an asset, not legal tender. This distinction is the core of the crypto-regulation debate.

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SIMILAR QUESTIONS

CDS-II · 2011 · Q89 Relevance score: -0.04

Consider the following statements : I. In India the minimum denomination coin acceptable for transaction is 50 paise. 2. Coins below 50 paise is not a legal tender for payment. Which of the statements given above is/are correct ?

CDS-I · 2017 · Q73 Relevance score: -1.55

Which of the following statements about Bitcoin is/are correct? 1. It is a decentralized virtual currency. 2. It is generated through complex computer software systems. 3. The Reserve Bank of India recognized it as a legal tender in January 2016. Select the correct answer using the code given below.

NDA-II · 2016 · Q97 Relevance score: -2.48

Which one of the following statements about Money Bill is correct ?

IAS · 2000 · Q59 Relevance score: -4.01

Which one of the following statements about a Money Bill is not correct ?

IAS · 1999 · Q66 Relevance score: -4.32

Which one of the following statements is not correct ? Dinar/New dinar is the currency of