Legal Tenders

[Rabi_R]

Other than 1 rupee notes, all other currencies are issued in India by the RBI, the word issue being in the sense used in the Coinage Act. No where in Gazette Notifications, it is mentioned that the word "issue" has been used in the same sense as it is in Coinage Act.
I haven't written "RBI is not the only issuing authority". I have written "No where it is written RBI will be the only issuing authority" Two are different.

I am loosing patience, if you make me type any more, i will take away all your proof coins.

[Figleaf]

Patience is a vital commodity for collectors. Get lots of it

Some general comments.

Currency peg is a term of the financial trade. It means that the central bank will do the needful to keep the rate against some other currency the same all the time. It's a stupid and disastrous policy if your inflation rate is diverging far or for long from the currency you are pegged to. A managed float is smarter, but can still get you in deep and expensive trouble e.g. if George Soros starts speculating against the float.

Legal tender is a recent (around 1816) invention and a pretty useless legal term that takes away rights. You cannot refuse payment with it. You cannot pay with more than so many pieces. You may not deface or melt, etc. Those rights apply mainly to payments. Proofs are not for payments, since they are sold at an agio only, so their legal tender status is irrelevant. You have rights of ownership instead.

Note that in practice, only stuff people trust is used for payments, irrespective of whether it is legal tender or not or whether it was issued by a government or not. In Zimbabwe, the Zim dollar cannot circulate, because it is not trusted. I paid with USD in Moscow, though the law there says I can't. In India, candy may serve as small change. Same thing in Italy around 1980. In Britain around 1795, copper money was fakes, tokens and other lightweight fluff mingled with a few remaining genuine coins, worn to the bone. I changed money on a black market in several countries at a much better than official rate, because people wanted an international currency, not their own bovine excrement etc. It has been like that all through history (ever heard of a Mughal coin that was legal tender?) and no law will change it.

Peter

[repindia]

I read through the coinage act again and see that all sections need to be considered in totality to interpret the act and we cannot just pick the language of one particular section.

Section 1 - no explanation necessary
Section 2- defines what coin, commemorative coin, mint etc are. Here explicitly mentioned coin is anything stamped by the government or authorized by the government. Mint is where metal is stamped to make coin
Section 3- Power to establish and abolish Mints -- no explanation necessary

Now coming to the interesting parts--
Section 4 - Coins (already defined in earlier section) to be minted at mints or authorized places (defined in earlier sections). Please note it does not differentiate between proof/unc and coins meant for circulation
Section 5 - Standard weight and remedy -- no explanation necessary
Section 6 - Coin when a legal tender -- just tells you which coins are legal tenders and how. You can use 10 paise coins and they will be accepted as legal tender till 1 Rupee and not beyond that, 1/2 Rupee not exceeding 10 Rupees in payment and any other coins Re1-Rs 1000 unto a 1000 Rupees. Please note no mention of proof or otherwise.
Section 7 - Decimal system of coinage
Section 8 - Power to call in coin, make it non-legal tender.

Now NCLT is not a married bachelor but legal tender coins which are not circulating. Why would someone pay INR 3500, take out the Rs 100 and Rs 10 coins and spend them? That would be stupid and you can do so if you want to. It would be perfectly legal to do so. I remember going to a bank where someone deposited a Rs 10 coin (NCLT) and they accepted it after deliberations.

Also please note that whatever coins produced as proof and UNC sets, their total is still counted as coined and ledger entry made. If you produce 100,000,000 quantity of Re 1 coins and then 3000 proof and 3000 UNC ones, then mint records will show 100,006,000 Re 1 coins being minted.

There is no motivation for the average person to use these coins in commerce since the value the buyer paid for these far exceeds the face value. This is the reason they are called NCLT.

There is an interesting story not from India but some island (I think it might be some British crown dependency but not sure) which used to produce a lot of NCLT coins for collectors. What happened was after a period of time the face value was greater than what they could be purchased for. Well, some smart folks figured this out and started cashing on it. The government very soon stopped this practice and made the coins non-legal tender.

I hope @Figleaf or @andyg might remember this since it was closer to Europe (or was it one of these Pacific Islands??).

@kansal888 is right on this one.

[repindia]

I was just searching for the NCLT story on Google when I came across this story in Britain where a man bought £29,000 worth of £100 face coins from the mint by credit card and accumulated the points enough for a good first class holiday. He planned to deposit these in the bank and was refused. The Royal Mint instructed the bank not to deposit the coins. I did some more research and found that £1, £2 and £5 coins only can be redeemed for unlimited amount. His £100 did not fall under this.

I also remember watching a video in which a person in the US tried to sell a Canada Maple coin which has C$50 face and 1 oz of gold in it to the general public. No one was willing to buy that coin for $25! Ignorant people. 

[Rabi_R]

Section 4 - Coins (already defined in earlier section) to be minted at mints or authorized places (defined in earlier sections). Please note it does not differentiate between proof/unc and coins meant for circulation

This Act is meant for only circulation coins. Why will it even attempt to mention proofs/UNCs?

[Rabi_R]

If you produce 100,000,000 quantity of Re 1 coins and then 3000 proof and 3000 UNC ones, then mint records will show 100,006,000 Re 1 coins being minted.

I think i have written this earlier..........."coins   issued by RBI are legal tenders and coins sold by mints are not, although both have been minted as per provision of Coinage Act "

[dheer]

Thanks repindia. Spot on analysis. There is an interesting case of Japan gold coins on other thread.

[Rabi_R]

Now NCLT is not a married bachelor but legal tender coins which are not circulating.

Section 12 of the Coinage Act may be referred -
1) No person shall
iv) (c)........for the purpose of selling such coins for value other than their face value........

If proof coins are legal tenders, then coin dealers may please be questioned how they are selling 100rs coins for 5000 rs.
And how mints themselves are selling it, let us keep that discussion for another day.

[repindia]

Section 12 of the Coinage Act may be referred -
1) No person shall
iv) (c)........for the purpose of selling such coins for value other than their face value........

If proof coins are legal tenders, then coin dealers may please be questioned how they are selling 100rs coins for 5000 rs.
And how mints themselves are selling it, let us keep that discussion for another day.

This question is answered in the coinage act itself! Please read Section 12 in full, particularly this-->

(3) Nothing in this section shall apply--
(ii) to the Mint, Reserve Bank of India and its authorised agents, and suppliers of coins or coin blanks to the extent of orders placed by or under the authority of the Government until their supply or completion of orders placed by the Government;

See now your doubts are cleared. The mint and RBI are exempt from all points of section 12. If that was not the case then the mints could not hold the planchets nor could they mint coins! It's as simple as that. The mints use this exclusion to price the coins sky high beyond our reach.

I hope this solves the little issue which you had. It is clear as daylight (at least to me). If you still disagree then we should agree to disagree.

[repindia]

I had never entirely read the coinage act of India till now and this brings an interesting point about dealers selling the latest coins for a premium. It seems this is illegal and they are hoarding coins meant to be supplied to the general public. The government issues circulating coins for day to day commerce and not for someone to hoard these bright shiny coins to sell to collectors for x50-100 the face value. The coinage act says nothing about coins pulled from circulation (prior year coins) but I think there is an understanding that this is okay and you won't be prosecuted. The legal professionals might be able to throw more light on this.

[Navaneeth]

This question is answered in the coinage act itself! Please read Section 12 in full, particularly this-->

See now your doubts are cleared. The mint and RBI are exempt from all points of section 12. If that was not the case then the mints could not hold the planchets nor could they mint coins! It's as simple as that. The mints use this exclusion to price the coins sky high beyond our reach.

I hope this solves the little issue which you had. It is clear as daylight (at least to me). If you still disagree then we should agree to disagree.

Thanks for this information.

[kansal888]

Other than 1 rupee notes, all other currencies are issued in India by the RBI, the word issue being in the sense used in the Coinage Act. No where in Gazette Notifications, it is mentioned that the word "issue" has been used in the same sense as it is in Coinage Act.

Dear Rabi_R

It is a matter of accepted principles that if a Gazette Notification is issued under any Act (Say Coinage Act or otherwise), the terminology used in the Gazette Notification will have the same meaning as given in its parent document -i.e. the relevant Act.

Gazette Notifications of the new coins are using language of form -  The coins of the following denominations  shall also be coined at the Mint for issue under the authority of the Central Government.... namely:

(i) Five Hundred Rupees;
(ii) Ten Rupees. 

The words like coin, issue, mints etc used in the Gazette will have their meanings derived from the Coinage Act, unless we can prove that the meaning was explicitly contrary to the context.

You do not have liberty of assigning arbitrary meanings to them.

Coinage Act clearly says:"coin" means any coin which is made of any metal or any other material stamped by the Government or any other authority empowered by the Government in this behalf and which is a legal tender including commemorative coin and Government of India one rupee note.

For me, Rs 500 coin as well as Rs 10 coin issued under this Gazette will be legal tenders. If you don't want to accept that Non Circulating Tenders (NCLTs) are legal tenders, then its upto you.

Regards

Sanjay Kansal

[EWC]

I cannot comment on the situation in India.  But I do feel that people are perhaps seeking to stand upon firm ground here, where in the modern financial world, there is hardly any to be found.

Some years ago, as I understand it,  UK clearing banks found themselves over stocked with 50p pieces, and requested to return them to B of E.  Who refused to accept them.

Clearing banks then loaded them into lorries and drove them to a B of E facility, in order to cover a routine transaction, but the gates were closed against them

Are UK 50p pieces legal tender?

I also visited B of E to ask the question:  why did Scotland and N. Ireland have £100 notes, when England did not?

The man I met would not answer the question directly, although he was helpful with indirect clues.  To my surprise though, it came out that Parliament had no say in the matter.  The Chancellor of the Exchequer merely had to instruct official bodies to issue and receive them.  It appeared to me that the whole matter could (legally) be brought into being on the basis of merely two letters issued by one individual......

Rob T

[kansal888]

Section 12 of the Coinage Act may be referred -
1) No person shall
iv) (c)........for the purpose of selling such coins for value other than their face value........
...
And how mints themselves are selling it, let us keep that discussion for another day.

Dear Rabi_R

It seems you have not read the provisions of Section 12 of Coinage Act in totality. Your premise that proof coins are not legal tenders because they are sold at higher than face value is wrong.

While Section 12(1) says that "no person shall... have in his possession, custody or control... coins substantially in excess of his reasonable requirements for the purpose of selling such coins for value other than their face value or for melting or for destroying or for disposing these coins other than as a medium of exchange"

A clear exemption is given to Mints and RBI in Section 12 (3). It clearly mentions that:

Nothing in this section shall apply.. to the Mint, Reserve Bank of India and its authorized agents, and suppliers of coins..

Thus the restriction of Section 12 does not apply on RBI and Mints. So Mints can very well sell proof coins at a price higher than their face value.

This was pointed out by repindia also

Regards
Sanjay Kansal

[andyg]

I hope @Figleaf or @andyg might remember this since it was closer to Europe (or was it one of these Pacific Islands??).

Marshall Islands I think
http://www.pireport.org/articles/1997/10/20/marshall-isalnds-legal-tender-coins-bring-lawsuit
From memory (I've not found a quote) I think the outcome was that the coins could be redeemed at 30% of face.