Modern currency — paper notes and coins — is not made of precious metals and has no use of its own. Yet peopl…

Question

Modern currency — paper notes and coins — is not made of precious metals and has no use of its own. Yet people willingly accept it in all transactions. Why?

Accepted Answer

## Model Answer Modern currency is accepted as a medium of exchange because it is **authorised by the government**. In India, the law makes it legal tender that cannot be refused in settling transactions. *Source: Money and Credit, Chapter 3 — Currency* --- ## Explanation The examiner expects one clear reason: **government authorization / legal tender status**. Mention RBI issuing notes on behalf of the central government and the law making rupee legally acceptable if you have space, but the core point is "government authority." Avoid long explanations about barter or history — this is a 1-mark answer.

Social Science (087) — AI-generated practice question