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Question

Distinguish between Legal Tender Money and Credit Money or Bank Money.

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Solution

1. Legal tender money refers to that money which is issued by the central bank on the order or authority of the government whereas credit money refers to that money whose value of money (face-value) is greater than the commodity value (intrinsic value) of money.

2. Legal tender money includes all notes and coins which the people in a country are legally bound to accept as a medium of exchange whereas credit money includes all such forms of money which the people of a country generally accept as a medium of exchange.

3. Legal tender money is a narrow concept as it includes only the notes and coins issued by the central bank whereas credit money is a broad concept as it includes the legal tender money as well as promissory notes, bank draft etc.



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