Legal tender

Legal Tender is a misunderstood concept. Coins and banknotes do not need to be 'legal tender' in order to be used as money to buy and perform other transactions for which money is intended. Legal tender must be accepted to settle a money debt.

As laid down in the United States Coinage Act of 1965, all coins and currencies of the United States, regardless of when coined or issued, shall be legal-tender for all debts, public and private, public charges, taxes, duties and dues.

However, US federal law does not restrict private businesses, persons or organisations in what methods of payment they choose to accept or refuse. Businesses are therefore free to insist on payment by credit card, for example, or to refuse larger denomination banknotes.

Only Canadian dollar banknotes issued by the Bank of Canada are legal tender in Canada. However, commercial transactions may legally be settled in any manner agreed by the parties involved.  A significant amount of business in Canada is transacted in United States dollars, despite United States currency not being legal tender.

Coins and banknotes can lose legal tender status if new notes of the same currency replace them or if a new currency is introduced replacing the former one.  Examples of this are

• The United Kingdom, adopting decimal currency in place of pounds, shillings, and pence in 1971
• France revaluing the new franc after World War II to assist in identifying wartime profiteers.

In the case of the euro, coins and banknotes of former national currencies were considered as legal tender from January 1, 1999, until February 28, 2002 (in some cases), even if their corresponding currencies had ceased to exist.  Legally, those coins and banknotes were considered non-decimal sub-divisions of euro.

Because legal tender can be refused unless or until a person is in debt, vending machines and transport staff do not have to accept the largest denomination of banknote for a single bus fare or bar of chocolate, and even shopkeepers can reject large banknotes.  However, restaurants that do not collect money until after a meal is served would have to accept any legal tender, though they would not be obliged to provide change – the restaurant is not in debt, it has been given a gift.

The right of a trader to refuse to do business with any person means a purchaser cannot demand to make a purchase, and so declaring a legal tender other than for debts would be redundant.

 

From Wikipedia, the free encyclopedia.