Legal Tender - Term that Leads to Confusion
By Alan Herbert
way to start an argument is to bring up the
topic of "legal tender." There's a lot of
confusion and conflicting information about
legal tender, so this is a good place to discuss
Legal tender is any coin or currency of a given
country that is designated as legal to use to
pay taxes, import duties and other functions.
Notice that I wrote "legal to use." The law
allows the use, but it does not force the use.
That's usually where the arguments start, but
the law is very clear - you can use it, but you
don't have to. Further, you cannot force someone
to accept it. This specific point is where the
words get heated, but that's the way the law
People who are unfamiliar with the law often
argue that you cannot legally refuse to accept
notes or coins that are declared legal tender.
This is good for recurring discussion groups,
whose main premise is that if legal tender is
offered and refused that the debt is cancelled.
Actually, there is no law forcing anyone to
accept legal tender. This doesn't stop officials
from refusing to accept the payment of fines in
cents, or the refusal of the Miami post office
to accept $100 notes, which is the incident most
This occurred in July 1989. In a three-day
period the Miami division of the Postal Service
took in 93 counterfeit $100 notes. This
contrasted with 120 fake notes of all
denominations in the previous year. The post
office followed the law and posted notices that
it would not accept $100 notes.
Legal tender goes back a long way. One of the
earliest uses of the term on our shores occurred
in Colonial Virginia. Virginia made tobacco
legal tender in 1618. In the 1620s 100 pounds of
tobacco bought a bride, shipped from England.
Later, inflation set in and the bride price went
up to 150 pounds. In 1648 the colony made it
illegal to pay debts with paper money, forcing
the use of tobacco.
Legal tender did not always mean coins or paper
money of the realm. Venezuela purchased 100,000
U.S. cents in 1835 and later in the year placed
an order for another 1 million cents and 1
million half cents. Most of the former were
delivered, but only a few of the half cents.
The U.S. dollar is currently legal tender
outside the United States in the British Virgin
Islands, Danish Virgin Islands, Caroline
Islands, Guam, Liberia, Mariana Islands,
Marshall Islands, Panama, Puerto Rico, American
Samoa, Turks & Caicos, U.S. Virgin Islands and
at U.S. military facilities. (I'm probably
missing a couple, as readers added several
countries the last time I had the question in
"Coin Clinic." My notes conveniently
We've also had our gold coins put to use north
of the border. The U.S. and Canadian currency
have had their comparative ups and downs, with
one or the other worth more. Back when the U.S.
and Canadian dollar were equal in value, in the
period prior to World War I, U.S. gold was
accepted as legal tender in Canada.
One reader asked, "Were the U.S. gold coins
always legal tender at face value?"
This is something of a trick question, as the
answer is that they were not. Full weight gold
coins were legal tender at full face value,
including coins that had not exceeded the
allowable wear for the number of years they had
been in circulation. However, if a coin was worn
to the point of weighing less than the
allowable, then it was accounted to be legal
tender only "in proportion to their actual
Another frequent question: "Are the gold and
silver Eagles legal tender coins?"
Technically and legally, yes, although one would
be foolish to redeem them for face value. As
might be expected, however, the public views
them as dollars, and there are a number of
reported instances of the coins (especially the
silver Eagles) actually being used for
The same rule also applies to proof coins.
Although they are struck for collectors and not
intended to circulate, the odd one turns up now
and then, and if it's worn or damaged, go ahead
and spend it. Many express surprise that proof
coins are found in circulation but there are two
principal reasons - stolen coins and coins
discarded into circulation by dealers who open
proof sets to recover higher grade coins.
One final note: Up until 1965 the cent and
nickel were legal tender for amounts up to 25
cents, but the Coinage Act of 1965 removed all
legal tender limits on all U.S. coins, again
including the Trade dollar and the half cent. Up
until 1857 foreign coins were legal tender in
the United States.