AI-generated practice question — model-generated for extra practice, not a previous-year CBSE board question.
Modern currency is accepted as a medium of exchange because it is authorised by the government; in India, the law makes it a legal tender that no one can refuse in settling transactions.
Source: Money and Credit, Modern Forms of Money — Currency
The examiner expects the key phrase "authorised/backed by the government" and the idea of legal tender. Mentioning RBI's role in issuing notes adds value but is not strictly necessary for 1 mark. Do not write about precious metals — the question already states that; just give the reason why it is still accepted.