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Legal Tender - Term that Leads to Confusion
By Alan Herbert
Coins Magazine

A good 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 it.

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 reads.

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 cited.

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 disappeared.)

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 weight."

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 purchases.

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.

 



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