'Legal tender' or 'forced tender' is
payment that, by
law, cannot be refused in settlement of a
debt denominated in the same
currency.
Legal tender is a status which may be conferred on certain examples of
money, which may depend on circumstances including the amount of money. The term ''legal tender'' does not refer to the money itself.
Legal tender is a concept that is frequently misunderstood: this is often a result of differing legal definitions in different
jurisdictions.
Cheques,
credit cards,
debit cards and similar non-cash methods of payment are not generally defined as legal tender. Only specific
coin and
note examples of cash money are usually defined as legal tender. Some jurisdictions may, by law, forbid or otherwise restrict payment made other than by legal tender. For example, such a law might outlaw the use of foreign coins and bank notes, or require a
license to perform
financial transactions in a foreign currency.
In some jurisdictions legal tender can be refused as payment if no debt exists prior to the time of payment (for example, where the obligation to pay arises substantially contemporaneously with the offer of payment). Consequently
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 — this is covered by the legal concept known as
invitation to treat. However,
restaurants that do not collect money until after a meal is served would have to accept that legal tender for payment of the debt incurred in purchasing the meal.
The right, in many jurisdictions, 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 not be effective.
In Australia
Australian notes are legal tender, as established by the
Reserve Bank Act 1959 for all amounts. Australian coins are also legal tender, under the provisions of the
Currency Act 1965, but only for the amounts:
★ not exceeding 20¢ if 1¢ and/or 2¢ coins are offered;
★ not exceeding $5 if any of 5¢, 10¢, 20¢ and 50¢ coins are offered;
★ not exceeding 10 times the face value if coins in the range 50¢ to $10 inclusive are offered;
★ to any value if coins of value greater than $10 are offered.
The one cent and two cent coins have been withdrawn from circulation, but they remain legal tender.
According to the
Reserve Bank of Australia, the
legal framework for legal tender in
Australia is somewhat unclear. The
Reserve Bank Act 1959 and
Currency Act 1965 establish that it is not legally required to accept legal tender, even for an existing debt, although failure to do so may be prejudicial in future legal proceedings.
History
In
1901 notes in circulation in
Australia consisted of bank notes payable in gold coin and issued by the trading banks, and Queensland Treasury notes. Bank notes circulated in all States except
Queensland, but were not legal tender except for a brief period in
1893 in
New South Wales. There were, however, some restrictions on their issue or other provisions for the protection of the public. Queensland Treasury notes were issued by the Queensland Government and were legal tender in that State. Notes of both categories continued in circulation until
1910, when the ''Australian Notes Act 1910'' and ''Bank Notes Tax Act 1910'' were passed by the Commonwealth Parliament. The ''Australian Notes Act 1910'' prohibited the circulation of State notes as money and the ''Bank Notes Tax Act 1910'' imposed a tax of ten per cent per annum on 'all bank notes issued or re-issued by any bank in the Commonwealth after the commencement of this Act, and not redeemed'. These Acts put an end to the issue of notes by the trading banks and the Queensland Treasury. The
Reserve Bank Act 1959 expressly prohibits persons and states from issuing 'a bill or note for the payment of money payable to bearer on demand and intended for circulation'.
In Canada
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.
Some business in Canada is transacted in United States dollars, despite United States currency not being legal tender.
Legal tender of Canadian coinage is governed by the
''Currency Act'' which sets out limits of:
★ 40 dollars if the denomination is
2 dollars or greater but does not exceed 10 dollars;
★ 25 dollars if the denomination is
1 dollar;
★ 10 dollars if the denomination is 10 cents or greater but less than 1 dollar;
★ 5 dollars if the denomination is 5 cents;
★ 25 cents if the denomination is 1 cent.
Retailers in Canada may refuse bank notes without breaking the law. According to legal guidelines, the method of payment has to be mutually agreed upon by the parties involved with the transactions. For example, convenience stores may refuse $100 bank notes if they feel that would put them at risk of being
counterfeit victims; however, official policy suggests that the retailers should evaluate the impact of that approach. In the case that no mutually acceptable form of payment can be found for the tender, the parties involved should seek legal advice. (
Currency Counterfeiting - FAQ)
In the Eurozone
Euro coins and banknotes became legal tender in most countries of the
Eurozone on
January 1,
2002. Although one side of the coins is used for different national marks for each State, all coins and all banknotes are legal tender throughout the
eurozone. Therefore, it is possible to find
Irish euro coins in
Greece and
Finnish euro coins in
Portugal, for instance. Although some eurozone countries do not put 1 cent and 2 cent coins into general circulation (prices in those countries are by general understanding always set in whole multiples of 5 cents), 1 cent and 2 cent coins from other eurozone countries remain legal tender in those countries.
Individual jurisdictions may however impose restrictions as to maximal amounts that can be settled by coins or notes.
In the Republic of Ireland
According to the ''Economic and Monetary Union Act, 1998'' of the
Republic of Ireland which replaced the legal tender provisions that had been re-enacted in Irish legislation from previous British enactments, ''No person, other than the
Central Bank of Ireland and such persons as may be designated by the Minister by order, shall be obliged to accept more than 50 coins denominated in euro or in cent in any single transaction.''
History
The ''Decimal Currency Act, 1970'' governed legal tender prior to the adoption of the euro and laid down the analogous provisions as in United Kingdom legislation (all inherited from previous
British law), namely: coins denominated above 10 pence became legal tender for payment not exceeding 10 pounds, coins denominated not more than 10 pence became legal tender for payment not exceeding 5 pounds, and bronze coins became legal tender for payment not exceeding 20 pence.
''See also:
Coinage of the Republic of Ireland''
In India
The
Indian rupee is the only legal tender in
India. The rupee is also legal tender in
Nepal and
Bhutan. But Nepali Rupee and Bhutanese Ngultrum are not legal tender in India. The Indian National Rupee is not accepted in Government institutions
like Post Offices etc in Nepal and Bhutan.
In Mexico
The
Mexican peso is legal tender in
Mexico.
[1]
In New Zealand
New Zealand has had a complex history of legal tender. At the creation of the colony after the signing of the
Treaty of Waitangi in 1840 there was no legal tender in
New Zealand. This was because although the Treaty authorised the British Crown to govern, the laws of the England had not been formally adopted by the new colony.
The English Laws Act 1858 retrospectively adopted the laws of England, and through the UK's Coinage Act 1816 British coins were confirmed as legal tender in
New Zealand. Unusually until 1989 the Reserve Bank did not have the right to issue coins as legal tender. Coins had to be issued by the
Minister of Finance.
The history of bank notes was considerably more complex. In 1840 the
Union Bank started issuing bank notes under provisions of British law but these were not automatically legal tender.
In 1844 Ordinances were passed making the
Union Bank banknotes legal tender and authorising the government to issue debentures in small denominations, thus creating two sets of legal tender. These debentures were circulated but were traded at a discount to their face value because of distrust of the colonial government by the settler population. In 1845 the Ordinance was disallowed by the British Colonial office and they were recalled, but not without first causing a panic amongst holders of the debentures.
In 1847 the
Colonial Bank of Issue became the only issuer of legal tender. In 1856 however the
Colonial Bank of Issue was disbanded and through the Paper Currency Act 1856 the
Union Bank was confirmed once again as an issuer of legal tender. The Act also authorised the
Oriental Bank to issue legal tender but this bank ceased operations in 1861.
Between 1861 and 1874 a number of other banks including the
Bank of New Zealand,
Bank of New South Wales,
National Bank of New Zealand and
Colonial Bank of New Zealand were created by Acts of Parliament and authorised to issue bank notes backed by gold, however these notes were not legal tender.
The 1893 Bank Note Issue Act allowed the government to declare a bank's right to issue legal tender. This enabled the government to make such a declaration to assist the
Bank of New Zealand when in 1895 the bank encountered financial difficulties that could have lead to its failure.
The 1914 Banking Amendment Act gave legal tender status to bank notes from any issuer and removed the requirement that banks authorised to issue bank notes must redeem them on demand for gold (the
gold standard).
In 1933 the Coinage Act created a specific New Zealand coinage and removed legal tender
status from British coins. In the same year the
Reserve Bank of New Zealand was established. The bank was given a monopoly on the issue of legal tender. The Reserve Bank also provided a mechanism through which the other issuers of legal tender could phase out their bank notes. These banknotes were convertible into British legal tender on demand at the Reserve Bank and remained so until the 1938 Sterling Exchange Suspension Notice that suspended provisions of a 1936 amendment of the 1933 Reserve Bank of New Zealand Act.
The 1964 Reserve Bank of New Zealand Act restated that only notes issued by the Reserve Bank were legal tender. The Act also ended the right of individuals to redeem their bank notes for coin, effectively ending the distinction between coin and notes in New Zealand. The Act came into force in 1967 establishing as legal tender all
New Zealand dollar five dollars banknotes and greater, all decimal coins, the pre-decimal sixpence, the
shilling, and the
florin. Also passed in 1964 was the Decimal Currency Act which created the basis for a decimal currency which was also introduced in 1967.
As at 2005 banknotes were legal tender for all payments, $1 and $2 coins were legal tender for payments up to $100, and 5c, 10c, 20c, and 50c silver coins were legal tender for payments up to $5. These older style silver coins were legal tender until
October 2006, after which only the new 10c, 20c and 50c coins, introduced in August 2006, will be legal.
Source:
Reserve Bank of New Zealand: Bulletin Vol. 66 No. 1
In Switzerland and Liechtenstein
The
Swiss franc is the only legal tender in
Switzerland. Any payment consisting of up to 100 Swiss coins is legal tender; banknotes are legal tender for any amount.
[2]
The sixth series of Swiss
bank notes from 1976, recalled by the National Bank in 2000, is no longer legal tender, but can be exchanged in banks for current notes up until April 2020. On the other hand, one centime coins, which are no longer issued or used in commerce, remain legal tender.
The Swiss franc is also the legal tender of the Principality of
Liechtenstein, which is joined to Switzerland in a
customs union.
In both countries,
Euro notes are also widely accepted as payment, e.g. in major retail stores. The Swiss franc is also the currency used for administrative and accounting purposes by most of the numerous international organisations that are headquartered in Switzerland.
In the United Kingdom
In the
United Kingdom, only coins valued
1 pound Sterling,
2 pounds, and
5 pounds Sterling are legal tender in unlimited amounts throughout the territory of the United Kingdom. The United Kingdom legislation that introduced the
1 pound coin left no United Kingdom-wide legal tender
banknote.
Currently,
20 pence pieces,
25 pence coins and
50 pence pieces are legal tender in amounts up to 10 pounds;
5 pence pieces and
10 pence pieces are legal tender in amounts up to 5 pounds; and
1 penny pieces and
2 pence pieces are legal tender in amounts up to 20 pence.
[3]
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. For example,
British banknotes issued by various institutions circulate in the United Kingdom without being legal tender in all the jurisdictions of the United Kingdom.
History
In the 19th century, gold coins were legal tender to any amount, silver coins were not legal tender for sums over 2 pounds, nor bronze for sums over 1
shilling.
This provision was retained in revised form at the introduction of
decimal currency, and the ''
Coinage Act 1971'' laid down that coins denominated above
10 pence became legal tender for payment not exceeding 10 pounds, coins denominated not more than 10 pence became legal tender for payment not exceeding 5 pounds, and bronze coins became legal tender for payment not exceeding
20 pence.
Legal Tender in the United Kingdom
Bank of England
notes are the only banknotes that are legal tender in
England and
Wales.
United Kingdom coinage is legal tender, but in limited amounts for coins below £1.
In England only notes made by the Bank of England are legal tender. Scottish notes are not legal tender anywhere in the UK including Scotland where only the coins are officially legal tender. Although this is the case Scottish notes are widely accepted in return for goods.
Creditors are obliged to accept any 'reasonable' settlement of the debt, be it banknotes (Scottish, English or otherwise), coins, cheques or even (in theory) property. In the event of a dispute, it would fall to a court to decide what 'reasonable' meant in the circumstances.
In general, Scottish and English notes and British coins will be accepted anywhere.
In the United States
The
United States Supreme Court held that paper money can be legal tender, in the
Legal Tender Cases, during the latter part of the nineteenth century. The
United States Coinage Act of 1965 states (in part):
:United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign, gold, or silver coins are not legal tender for debts.
.
Some small stores in the United States have a policy of not accepting large notes, often above $20 or $50, either at all or at certain times of day; this allows them to keep fairly small quantities of money in the register and deter
robbery, and also serves to limit one's risk of accepting
counterfeit notes. These private charges must therefore be paid in small denominations, if cash is used.
==
Demonetisation==
Coins and banknotes may cease to be legal tender if new notes of the same
currency substitute 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. Banknotes remained unchanged (except for the replacement of the 10 shilling note by the 50 pence coin). In 1968 and 1969 decimal coins which had precise equivalent values in the old currency (5p, 10p, 50p) were introduced, while decimal coins with no precise equivalent (½p, 1p, 2p) were introduced on
15 February 1971. The smallest and largest non-decimal circulating coins, the half penny and half crown, were withdrawn in 1969, and the other non-decimal coins with no precise equivalent in the new currency (1d, 3d) were withdrawn later in 1971. Non-decimal coins with precise decimal equivalents (6d ( = 2½p), 1 and 2 shillings) remained legal tender either until the coins no longer circulated (1980 in the case of the 6d), or the equivalent decimal coins were reduced in size in the early 1990s. The 6d coin was permitted to remain in large circulation throughout the United Kingdom due to the London Underground committee's large investment in ticketing machines that used it.
★ The
successor states of the
Soviet Union replacing the
Soviet ruble in the
1990s.
Individual coins or banknotes may be demonetised and cease to be legal tender, for example, the pre-decimal United Kingdom
farthing or the Bank of England 1 pound note.
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.
When the
Swiss Dinar ceased to be legal tender in Iraq it still circulated in the northern Kurdish regions and despite lacking government backing it had a stable market value for more than a decade. This example is often cited to demonstrate that the value of a currency is not derived purely from its legal status.
This is also true of the paper money issued by the
Confederate States of America during the
American Civil War. Though Confederate currency became worthless by its own terms after the war, since it could only be redeemed a stated number of years after a peace treaty was signed between the Confederacy and the United States (which never happened as the Confederacy was defeated and dissolved), the value of Confederate currency today as a historical and collectible item is usually much greater than its face value.
Demonetisation is currently prohibited in the United States; the Coinage Act of 1965 (quoted in the previous section) applies to all U.S. coins and currency regardless of age. The closest historical equivalent in the U.S., other than Confederate money, was from 1933 to 1974, when the government banned most private ownership of gold bullion, including gold coins held for non-numismatic purposes; but today, even surviving pre-1933 gold coins are legal tender under the 1965 act.
Withdrawal from circulation
Banknotes and coins may be withdrawn from circulation, but remain legal tender. United States banknotes issued at any date remain legal tender even after they are withdrawn from circulation. Canadian 1- and 2-dollar bills remain legal tender even though they have been withdrawn and replaced by coins, while Canadian $1000 bills remain legal tender although they are removed from circulation as they arrive at a bank. However, Bank of England notes that are withdrawn from circulation generally cease to be legal tender although they remain redeemable for current currency at the Bank of England itself. All paper and polymer issues of
New Zealand banknotes issued from
1967 onwards (and 1- and 2-dollar notes until
1993) are still legal tender; 1- and 2-cent coins are no longer used in
Australia and
New Zealand.
Miscellaneous
Sometimes currency issues such as commemorative coins or transfer bills may be issued that are not intended for public circulation but are nonetheless legal tender. An example of such currency is
Maundy money. Some currency issuers, particularly the Scottish banks, issue special commemorative banknotes which are intended for ordinary circulation. As well, some standard coins are minted on higher-quality dies as 'uncirculated' versions of the coin, for collectors to purchase at a premium; these coins are nevertheless legal tender. Some countries issue precious-metal coins which have a currency value indicated on them which is far below the value of the metal the coin contains — these coins are known as "non-circulating legal tender" or "NCLT".
See also
★
Currency
★
Gresham's law
★
Postage stamp demonetization
Notes
1. http://www.banxico.org.mx/sitioingles/billetesymonedas/infogeneral/frequentlyAskedQuestions/frequentlyAskedQuestions.html
2. Art. 3 of the Swiss law on Monetary Unit and means of payment. German, French and Italian versions.
3.
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