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📚 Learn/ / FEMA - Foreign Exchange Management Act, 1999
Microlesson · 5-min read

Section 2 - Definition of Currency, Foreign Currency, Coins & Bank Notes

# Definitions: Currency, Foreign Currency, Coins & Bank Notes

## Currency [Section 2(h)]

Currency is defined inclusively and covers ALL of the following:

  • Currency notes
  • Postal notes
  • Postal orders
  • Money orders
  • Cheques
  • Drafts
  • Traveller's cheques
  • Letters of credit
  • Bills of exchange
  • Promissory notes
  • Credit cards
  • Similar instruments (any instrument notified by RBI)

## Coins and Bank Notes

Currency also includes coins and bank notes (the physical money in circulation).

## Foreign Currency [Section 2(m)]

> "Foreign currency" means any currency OTHER than Indian currency.

This is a residual definition — anything that is currency (per the wide list above) and is not Indian currency qualifies as foreign currency.

## Why the Wide Definition?

If only currency notes were included, payments through cheques, drafts, credit cards etc. would escape regulation. By covering all common payment instruments, FEMA ensures the Act bites on the substance of any transaction, regardless of the instrument used.

Worked example

### Example 1

Example 1: Mr. A pays USD 1,000 to a foreign supplier by international credit card. Since credit cards are 'currency' under FEMA and USD is foreign currency, this is regulated under FEMA.

### Example 2

Example 2: A traveller's cheque denominated in Euros given to an Indian resident → 'currency' (traveller's cheque) + foreign currency (Euros) = covered by FEMA.

⚠️ Common exam mistakes

  • Restricting 'currency' to physical notes and coins — the FEMA definition is much wider.
  • Forgetting that credit cards are included in the definition of currency.
  • Treating only USD/EUR as foreign currency — any currency other than Indian Rupee is foreign currency.
Bare-Act text Section 2(h) & 2(m) · Foreign Exchange Management Act, 1999 · click to expand
"Currency" includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank. "Foreign currency" means any currency other than Indian currency.
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