This is a great time to understand basics of money, currency and many other things.
A currency note is nothing but an “I owe you” note. The RBI Governor on behalf of the government on a 100 rupee note says” I promise to pay the bearer the sum of hundred rupees”. Earlier, this 100 rupees meant one could exchange it for Rs 100 of Gold or silver. But in the era of fiat currency, there is no such backing. So the currency runs as per mere order of Government. The entire thing is based on trust in the government.
As the government itself decided to take out the legal tender from the market, there is total chaos. After all money is the essence of a market economy. Anything could be money but in India and most parts of the world, money is meant as cash atleast for settling basic transactions.
Within the chaos comes out some interesting innovations from people. This is one such innovation where people are giving empty envelopes in marriages. Outside the envelope it is written the words of central bank governor in Hindi with a promise to pay in future. So, once the guests get money they shall pay the family.
This wedding season, newlyweds have started receiving IOU (I owe you) envelopes from relatives promising them their ‘shagun’ on a later date. After the Centre’s demo netisation move, several wedding guests in Jaipur approached designers to print informal signed envelopes which promise that the bearer will be paid a sum varying from Rs 500 to Rs 2,100.
This is nothing but development of a parallel currency at a much smaller scale. Now, if people trust and circulate this envelope amidst themselves as currency, it just becomes a currency. The promise to pay statement has to be trusted and credible. However, one place where this currency will not be accepted is you guessed it – government offices and departments. They say we shall only accept our issued currency for paying taxes and other services. As governments typically are the largest economic entities, one has little choice but to accept their currency.
This is also how governments eventually pushed their currencies for broader usage. Gradually, they generated economies of scale from their operations and govt issues currency became the only circulating currency in most economies.