Previous Year Question
Which of the following phrases defines the nature of the ‘Hundi’ generally referred to in the sources of the post-Harsha period?
Correct Answer: C
Detailed Solution
A Hundi was a traditional Indian financial instrument connected with trade, credit and remittance. According to the Reserve Bank of India, Hundis were used to transfer funds from one place to another, to obtain credit and in commercial transactions as bills of exchange.
In simple terms, a merchant did not necessarily have to physically transport a large quantity of coins over a long distance. A Hundi could be issued through a merchant-banker at one place and payment could be realised on its basis at another place. It therefore facilitated long-distance trade and remittance. RBI describes Hundis as an important class of credit instruments that evolved in the Indian subcontinent.
According to RBI, technically a Hundi could function as an unconditional written order for payment, directing one person to pay a specified sum to another person named in the document. Different varieties of Hundis existed, and in practice they could operate as bills of exchange, remittance instruments or instruments resembling cheques issued by indigenous bankers.
An important chronological fact is that RBI places the most widespread use of Hundis in the twelfth century, noting that their use continued much later as well. Thus, the “post-Harsha period” fits the broader historical context of the development and spread of this financial instrument.
Hundi → credit/financial instrument → remittance + credit + trade → bill of exchange