Legal Tender – Definition

Cite this article as:"Legal Tender – Definition," in The Business Professor, updated March 26, 2019, last accessed September 25, 2020, https://thebusinessprofessor.com/lesson/legal-tender-definition/.

Back toECONOMIC ANALYSIS & MONETARY POLICY

Legal tender is a type of currency or medium of exchange. It is money that is valid and acceptable for the settlement of debts which must be recognized when issued.

Both bills and coins are regarded as forms of legal tenders while postage stamps don’t qualify to be legal tender. Many countries consider coins and paper currency to be part and parcel of legal tender. Various jurisdictions understand and define legal tender differently. As a result of this, non-cash modes of making payments such as credit cards and cheques are never regarded as legal tender. The denomination and specification of a nation’s currency by legal standards and regulations ought to be recognized as means of commercial exchange and as sources for settling debts owed. As far as legal tender constitutes all the money denominations under circulation, the sum of coins and the denomination that can be recognized as legal tender differ from one nation to the other. Postal orders and cheques don’t constitute legal tenders since they are only recognized at the discretion of the seller, lender or creditor. It is commonly referred to as lawful money. The United States regulations concerning legal tender is very clear despite the fact that most people don’t like dwelling on the legal perspectives of the matter at hand.

Section 31 of the Coinage Act of 1965 titled ‘legal tender’ claims that “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tenders for all debts, public charges, taxes, and dues”. The Coinage Act of 1873 was replaced by The Coinage Act of 1965. The federal government introduced new regulations which separated dimes from being part of silver and readjusted the contents of silver to half dollars.

Demonetization refers to the act aimed at eliminating the legal tender of a certain currency. This in most cases happens in situations where the country or countries decide to have a different currency from the existing ones. This implies that the currently available currencies are being removed from the system so that they no longer circulate. This is usually done in circumstances where the country intends to do a replacement of old currencies with new ones. This is achieved by bringing up alternative coins and notes. On the other hand, remonetization is the direct opposite of demonetization in which the country recognizes the available currencies as the legal tenders for making payments.

The Legal Tender Cases, Dam, K. W. (1981). The Legal Tender Cases. The Supreme Court Review, 1981, 367-412. The author in this article is concerned with the various cases of Supreme Courts in the United States. These cases affirmed and validated the legal nature and constitutionality of paper money by recognizing them as legal tenders.

Legal Tender, Thayer, J. B. (1887). Legal Tender. Harvard Law Review, 73-97. This section is concerned with the description currencies that constitute the legal tender. The author proceeds by shedding light on some of those currencies which may be in the form of either coins or paper currencies.

Coins, notes, and bits: The case for legal tender on the Internet,  Konvisser, J. B. (1996). Harv. JL & Tech., 10, 321. This paper dwells into how people using the internet have embraced currencies in the form of notes coins and bits. The author investigates how people have managed to do business online and how they have been able to recognize those denominations as legal tenders.

Legal tender notes in California, Moses, B. (1892). The Quarterly Journal of Economics, 7(1), 1-25. The author in this article is concerned with highlighting to us on how there was no circulation of paper currencies in California. The paper proceeds by informing us how money circulated in California in the form of gold and silver. The paper currencies were introduced much later which served as the legal tender.

The banking institutions, bullion reserves, and non-legaltender note circulation of the United Kingdom statistically investigated, Dun, J. (1876). Journal of the Statistical Society of London, 39(1), 1-197. This paper tries to analyze the circulation of non-legal-tender notes in the United Kingdom. In addition to this, the author looks into the banking reserves and how they influenced the banking institutions within the United Kingdom.

Legal Tender Laws and Fractional-Reserve Banking, Hülsmann, J. G. (2004). Journal of Libertarian Studies, 18(3), 33œ55.  The article talks about how fractional-reserve has become common and universal conduct by commercial banks as the best ways of accepting deposits. The author goes ahead to inform us of how these reserves can be held by the bank and issue them as loans. These loans can be used as investments.

Legal Tender during the English and Irish Bank Restrictions, Fetter, F. W. (1950). Journal of Political Economy, 58(3), 241-253. This article highlights to us the restrictions that existed in both England and Ireland. The author proceeds by informing us about how Irish currencies were not recognized in Ireland. It also informs us of how Irish currencies were not recognized in England.

Non‐legaltender paper money: the structure and performance of M aryland’s bills of credit, 1767–75, Celia, J., & Grubb, F. (2016). The Economic History Review, 69(4), 1132-1156. The author in this paper talks about the contribution of Maryland’s tender in the period of 1765 and 1775 to find out the outstanding amounts and dates of redemption. Majority of the present value of the paper currency was a real asset while liquidity premium composed of the 20 percent. The article reveals that there is a correlation between the paper currency in circulation and the liquidity premium.

The Legal Tender Cases. A Drama of American Legal and Financial History, Cormack, J. M. (1929). Virginia Law Review, 132-148.  The author here highlights to us how the legal tender cases in American Supreme courts and how they have influenced the American Financial and Legal History. The article highlights to us how the cases insisted on the legal and constitutional nature of the American currencies.

Payments and the concept of legal tender, McBride, N. (2015). The Reserve Bank of New Zealand Bulletin, 78(6), 3. This article is concerned with the public concerns that regard regulations of the legal tender. There have been disputes in methods of payment where some are attributed to the various types of currencies in circulation. During the period of 2007, there were some public concerns because sellers refused to accept payments when old coins were used. Later on, during the year 2015, some new notes started circulating and at some point, the old ones remained to be legal tenders which were used to make payments.

Some Considerations on the LegalTender Decisions, James, E. J. (1888). Publications of the American Economic Association, 3(1), 49-80. This article highlights to us some factors that should be considered when recognizing the legality of paper money as legal tenders. The author tells us about some critical decisions that relate to the legal tenders.

The Monetary and Legal Tender Acts of 1933-34 and the Law, Hannigan, J. E. (1934). BUL Rev., 14, 485. The author investigates the laws that were passed in the United States regarding the usefulness of legal tenders. The article describes to us the coins and notes that have been embraced as legal tenders which are utilized to settle government bills.

Substitutes for Legal Tender: Lessons from History for the Regulation of Virtual Currencies, Middlebrook, S. T., & Hughes, S. J. (2015). The author in this article brings out the alternative currencies that have been used in the United States of America to substitute legal tenders and the influence they have had in the present currencies. The author informs that despite the emergence of these alternative currencies, the government exercised caution when dealing with them. At some point, these governments tried to discourage the emergence and use of these alternative currencies by introducing criminal prosecutions to the parties involved. Despite these, it is important to note that some of those alternatives became to be recognized by some authorities and have been used as legal tenders to settle payments. The author concludes by looking into the currency rules in the United States by paying attention to previous digital currencies, bitcoin, and e-gold.

Was this article helpful?