Legal Tender

What is Legal Tender?

Legal tender is referred to a form of money that is recognized by the law as a method to settle down a private or public debt or to meet financial obligations, like contracts, tax payments and legal damages or fines. The national currency is regarded as the legal tender for every country.

A creditor is legally responsible for accepting legal tender toward the debt repayment. A statute established this concept, specifying the things that must be used as the legal tender. Although every jurisdiction gets to determine legal tender; however, essentially, it is anything that is, when offered in terms of debt payment, eradicates the debt.

Usually, banknotes and coins are defined as legal tender in several countries. Certain jurisdictions might also include a certain foreign currency along with the domestic currency as a legal tender.

Legal Tender in India

In India, the Rupee is the de facto legal tender. Not just that, but this currency is also regarded as the legal tender in Bhutan and Nepal. Furthermore, the Indian Rupee used to be the official currency of other nations as well, including Kuwait, Bahrain, Qatar, and more.

In 1947, after the partition, the Pakistani Rupee was founded, which was using Indian currency notes and coins with “Pakistan” stamped on the same. It was in 1948 when Pakistan issued its own banknotes and coins.

The Gulf rupee, also called as the Persian Gulf Rupee (XPGR) was put forth by the Indian government with the Reserve Bank of India Amendment Act of 1 May 1959, as a replacement for the Rupee to exclusively circulate outside the nation.

This separate currency creation was an initiative to decrease the burden put on the foreign reserves of India. Eventually, Bahrain and Kuwait replaced the Gulf rupee with their currencies (Bahraini dinar and Kuwaiti dinar) after acquiring independence in 1965 and 1961 from Britain.

Also, in 1966, India devalued its currency – the Rupee. To avert devaluation following, several states using the Rupee began adopting their own currencies. While Abu Dhabi went with Bahraini dinar, Qatar and most parts of the Trucial States got away with Dubai and Qatar riyal.

Just Oman continued the use of the Gulf rupee until 1970. Later, in the same year, it replaced it with its own rial.