Which of the following is/are issued by the RBI and acts as legal tender money ?
(A): Demand deposits
(B): Coins of all denomination
(C): Currency notes of various denominations, except one rupee note
(D): One rupee currency notes
Choose the correct option:

Question

Accepted Answer

The correct option is 3:
Currency notes of various denominations, except the one rupee note, are issued exclusively by the Reserve Bank of India (RBI) under the Reserve Bank of India Act, 1934, and function as legal tender money. The RBI is India's sole monetary authority responsible for the issue of currency notes (excluding the one rupee note) to ensure the stability of the monetary system. As legal tender, these notes must be accepted by law in India for all monetary transactions, including the settlement of debts. This power of issue is central to the RBI's function as the central bank. Therefore, only statement (C) correctly identifies the money issued and circulated by the RBI as legal tender.

The incorrect option is 1: Only (A) and (C) are correct
Demand deposits, while acting as a form of money (bank money or fiduciary money) and being a medium of exchange, are not issued by the RBI; they are created by commercial banks when individuals deposit money or take loans. Furthermore, demand deposits are not considered legal tender because a person is not legally compelled to accept a cheque or draft as payment; acceptance is based on trust. While demand deposits facilitate transactions, they fail the criteria of being both issued by the RBI and acting as legal tender, making option (A) incorrect.

The incorrect option is 2: Only (B) and (C) are correct
Coins of all denominations are indeed legal tender, but they are not issued by the RBI. According to the Coinage Act, 2011, coins in India are issued by the Government of India (specifically the Ministry of Finance). The RBI merely acts as the agent for distributing these coins. Therefore, statement (B) fails the crucial requirement that the money must be *issued by the RBI*.

The incorrect option is 4: Only (D) is correct
The one rupee currency note is the only paper currency in India that is issued directly by the Government of India (Ministry of Finance), not the Reserve Bank of India. It bears the signature of the Finance Secretary, not the RBI Governor, differentiating it from all other currency notes (₹2 and above). Although the one rupee note is legal tender, statement (D) is incorrect because it is not issued by the RBI.