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What is Legal Tender money | Types, Role or Importance of money

What is Legal Tender money
What is Legal Tender money

What is Legal Tender Money

Legal tender money is that money, which is  accepted by the public for exchange of goods and for store of value. It includes the following:

(1) Coins

(2) Paper money

1. What is Coins

These are made of gold, silver, copper, gilt etc. They vary in value such as one rupee, ten rupee etc. They are known as metallic money. It is of two types as under.

(a) What is Standard Coins

When the intrinsic and face value of coins are equal they are known as standard coins such as coins of gold and silver.

(b) What is Token Coins

These coins have more face value than their intrinsic value. They are unlimited and limited Legal tender coins.

Also Read-  What is Money | Definition, Functions and various kinds of Money

2. Meaning of Paper Money

The notes issued by Central Govt. or Central Bank are called paper money. These are of three types as under:

(a) Representative Money

This paper money is fully backed by precious metals such as gold. Money supply changes in proportion with the change in the reserves.

(b) Convertible Money

Where government is ready to convert the paper money into gold and silver on demand by the bearer of money, it is called convertible paper money.

(c) Inconvertible Paper Money

This paper money is not guaranteed by the government to be converted into gold or silver. Now a days such type of paper currency is in circulation.

Role or Importance of money

(1) Money has its own importance in its primitive stage as well as in modern times. Without money no exchange is possible and the commercial activities cannot take place.

Money has been used in varieties of its form. Money must possess quality of acceptance and store.

(2) One need not be an economist or an accountant to be actual aware that money plays an important role in modern life. All of us know that the process of getting a living is a process of getting and spending money and how well one can live depends upon how many rupees one can get and how many goods and services cache rupee will buy.

Also Read- What is Money in Ancient Times | Stages in The Evolution of Money

(3) It is equally important that the behavior of money is also vitally important to the operation of national and international economies. When we recall the events of history we are reminded that the periods of major economic contraction such as in 1929-33 in different parts of the world were frequently characterized by banking or monetary crisis and invariably accompanied by substantial reduction in the stock of money.

In other periods stories of inflation, of rising living costs and of discontent and distress among those whose income and wealth were relatively fixed in terms of money, are common.

(4) History also provides ample evidence that the movement of money between nations can have an important influence on economic development throughout the world.

In India, for instance, we have had to worry about the international position of rupee, about the continuing deficit in the balance of international payments. speculation against the rupee etc.

Aggravated by increasing oil prices, international economic problems continued unabated after 1973. On the domestic front we seem to have the worst of both the worlds with the nation struggling to cope with inflation and also with excessive unemployment.

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(5) The personal experience as well as some knowledge of history and economics make it clear to everyone that money plays an important role in the economic system and that the behavior of money is somehow casually related to the behavior of employment, rate of real output, the level of prices, the distribution of income and wealth and so forth.

What are not so clear, however, are the answers to questions such as these: What are the functions of money in the economy. How does money perform these functions ? What are the effects of various types of monetary and credit policies ? And there are many more such questions.

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