What is a “Promissory Clause” on a banknote?

17 Apr 2018  Tue

If you have ever seen our Indian banknotes with a keen eye you would have noticed that the Governor of Reserve bank of India (RBI) “Promises” something on each note that is issued!

Banknotes issued by RBI from 1970 onwards have the promissory clause on the obverse which reads as “I PROMISE to pay the bearer the sum of ___ rupees”.

This promissory clause means that the banknote is a legal tender for the specified amount. The obligation on the part of the Bank is to exchange a banknote with bank notes of lower value or other coins which are legal tender under the Indian Coinage Act, 2011, of an equivalent amount. Also as per Section 26 of Reserve Bank of India Act, 1934, the Bank is liable to pay the value of banknote.

And as far as the promise of the Governor of the RBI is concerned, why do we need it?

This promise makes the banknote an official legal tender of India which should be accepted by all. This helps in hassle-free use of currency in the whole country since anyone who bears the note can go to RBI and get it redeemed. Meaning that this legal tender is a medium of payment allowed by the law or recognized by a legal system as valid for meeting any financial obligation.

Information courtesy: RBI’s official website.

Image Courtesy: www.fell.it

Knowledge Base