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Kinds Of Money : Legal Tender Money And Optional Money

Kinds of Money : Coins, Paper and Deposit Money.
Kinds of Money : Legal Tender Money and Optional Money. (You are reading this)
Kinds of Money : Money Proper and Money of Account.

Legal Tender Money is that money which is officially designated by the government as an adequate instrument for the discharge of obligations stated to be payable in domestic money. A creditor has no legal right to refuse an offer of legal tender money by a debtor in fulfillment of a general monetary obligation. Governments declare certain kinds of money in circulation to be legal tender or “legal means payment” with the dual purpose of increasing their acceptability and clarifying the legal position of debtor and creditor in discharging obligations calling for money payments.

Kinds Of Money : Legal Tender Money And Optional Money

Depending upon the degree or extent to which money pieces of different denominations in circulation are legally acceptable, legal tender money is further classified as “Limited Legal Tender” and “Unlimited Legal Tender”. Subsidiary coins of smaller denominations are legal tender for only limited amounts. Standard coins and currency notes of varying denominations, on the other hand, are unlimited legal tender.

Optional Money is that money which is ordinarily accepted by the people for final payments, but has no legal sanction behind it. Credit instruments like cheques, bank drafts, bills of exchange, promissory notes etc. are optional money. No one can be forced to accept them but they are generally accepted because people have confidence in the credit of these types of paper. Optional money is also called credit money. Robertson has called legal tender money as “Common Money” and optional money as “Bank Money

As stated earlier, in the advanced economics particularly credit money constitutes the major part of the money stock in the hands of the public. It should be clearly understood that legal tender powers may increase the acceptability of a money to some degree, but the grant of such powers is neither a necessary nor a firm assurance of acceptability.

Reference Book: Money Banking and International Trade.
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Topic Under: 12/04/2017
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