Legal definition of money:
Money that has a legal sanction by the government behind it is called legal tender or legal tender money.
Legal tender or legal money means money under the law of land. It is the money issued by monetary authority or government which cannot be refused by any person in payment for transactions. The tender or payment of it constitutes by law the sufficient discharge of debt.
The government issues an order stating what money is and that becomes legal tender money. Everybody is bound to accept it in exchange for goods and services and in discharge of debts. None can refuse to accept it because non-acceptance is an offence. For example, in India currency (notes) and coins are legal tender money which cannot be refused in payment of transactions.
In this context, chequable demand deposit is not money because a person can legally refuse to accept payment through cheques. Legal tender status given by the government to money is of two types—limited legal tender and unlimited legal tender.
(i) Limited legal tender:
It is the money which can be accepted only up to a certain maximum limit fixed by law. For instance, in India, coins are limited legal tender because coins of 5, 10, 20 and 25 paise are accepted up to maximum sum of Rs 1000 as per Coinage Bill passed on 11th August, 2011. One could refuse payments in these small coins beyond a sum of 1000. One can refuse payments by an individual in small coins beyond this limit.
(ii) Unlimited legal tender:
It is the money for which there is no limit to the quantity of money offered in a payment at a time. For example, in India, paper notes are unlimited legal tender because all currency notes can be used to settle payments of unlimited value.
Remember, currency notes of the denomination of rupee two and above are issued by the Reserve Bank of India (RBI) whereas one rupee notes and coins are issued by the Government of India. (Printing of one rupee notes has been stopped by the government now.)