Distinguish between the token value and intrinsic value of money. How does this distinction shape public trust in a currency?

A coin can be valued in two ways. Its intrinsic value is what its material is worth. Its token (face) value is the worth the State assigns to it by law. Modern currency is token money, so public trust in the currency rests on the credibility of the issuer, not on the metal in the coin.

Token vs Intrinsic Value

• Basis: intrinsic value comes from metal content, as with historical gold and silver coins. Token value comes from law: coins are legal tender under Section 6, Coinage Act, 2011 [1].
• Relation: token value is deliberately set above intrinsic value. If the metal were worth more than the face value, people would melt or hoard the coins.
• Guarantor: the market sets intrinsic value, and the State guarantees token value. The Government mints coins, and they are issued only through the RBI under Section 38, RBI Act, 1934 [1].
• Legal protection: the law protects the token, not the metal. A defaced coin loses legal tender status [1].
• No official premium: the RBI does not buy or sell old coins [1]. Any price above face value is a private deal.

Impact on Public Trust

Strengthens trust

• Trust shifts from the metal to institutions. This allows a stable money supply that is not tied to scarce metals.
• Legal backing gives everyone a common standard. Coins of ₹1 and above are legal tender up to ₹1,000 per transaction [1].

Creates vulnerabilities

• Myths about metal can inflate value. In 1926 Colombo, people believed the Treasury would pay Rs. 2 per 1924 cent because gold had supposedly been mixed into the copper. Boutique keepers made money selling those cents [3].
• Rumours can also deflate value. People refused ₹10 coins over doubts about whether they were genuine, and the 14 different designs in circulation added to the confusion [2].
• Fraudsters borrow official names. The RBI's 4 August 2021 caution warned against fake offers to buy or sell old coins [1].

Low awareness of token value → "metal-worth" rumour → hoarding / refusal → coin stops working in trade

Fig: How rumours erode trust in token money

Way Forward

• The RBI directed banks to accept coins at all branches [2]. When a bank counter accepts a coin, people can see the proof for themselves.
• Financial literacy campaigns should explain what token value means.
• Warnings should target the pattern ("no authority pays a premium") rather than one rumour at a time.

Token money works because people trust it. Clear communication by the issuer and wider financial literacy can protect that trust, in line with SDG 8.10 on financial inclusion.