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Legal Tender

Noble initiative to start writing more blogs educational in nature related to new things I come across as I move ahead in my MBA journey. About an year and a half left in this quest for knowledge. Will share in detail a new post about my college experiences in another post.

Coming to business, we had this interesting session by our Macro Economics professor on how the money system works. What gives money its value and so on. One of the new terms I come across and interestingly the meaning is something quite contrary to what I had expected. So just thought I should research a bit more and write about it.

Quoting from Investopedia:

"Legal tender is any official medium of payment recognised by law that can be used to extinguish a public or private debt, or meet a financial obligation. The national currency is legal tender in practically every country. A creditor is obligated to accept legal tender toward repayment of a debt."

So to basically put it, Legal tender ensures that you if you pay through a medium that is accepted by the law in a country, a creditor cannot deny acceptance. There are certain limits on it though.

In India this is what is mentioned on the RBI website regarding legal tender. It is not like you need to payment of ₹ 5,000 and you end up taking a sack of 10,000 50p coins and ask the shopkeeper to count. Imagine the tedious nature of the task, thus it is essential to put certain checks and balances in place. This is what is mentioned regarding the value of money that can be used in the Reserve Bank of India (RBI) website:

“The coins issued under the authority of Section 6 of The Coinage Act, 2011, shall be legal tender in payment or on account i.e. provided that a coin has not been defaced and has not lost weight so as to be less than such weight as may be prescribed in its case: - (a) coin of any denomination not lower than one rupee shall be legal tender for any sum, (b) half rupee coin shall be legal tender for any sum not exceeding ten rupees,
Every banknote issued by Reserve Bank of India ( ₹ 2, ₹ 5, ₹ 10, ₹ 20, ₹ 50, ₹ 100, ₹ 500 and ₹ 1000) shall be legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government, subject to provisions of sub-section (2) Section 26 of RBI Act, 1934”

Invitation to tender (ITT) is an entirely different term. As per businessdictionary.com :

“Initiating step of a competitive tendering process in which qualified suppliers or contractors are invited to submit sealed bids for construction or for supply of specific and clearly defined goods or services during a specified timeframe. Also called request for tenders.”

                                                   Image Courtesy: News18.com

I hope this post was informative in understanding the difference between ITT and Legal Tender.


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