Legal tender

Learn more about Legal tender

Jump to: navigation, search

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.


[edit] Legal tender 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 notes in the range 50¢ to $10 inclusive are offered;
  • to any value if notes 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The one cent and two cent coins have been withdrawn from circulation, but they remain legal tender.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.

[edit] 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'.

[edit] Legal tender 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)

[edit] Legal tender in the Eurozone

Euro coins and banknotes became legal tender in most countries of the Eurozone on January 1, 2002. Although coins have 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.

[edit] Legal tender 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.

[edit] 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

[edit] Legal tender 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.

[edit] Legal tender 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 [1]

[edit] Legal tender in Switzerland and Liechtenstein

Main article: Swiss franc

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.<ref>Art. 3 of the Swiss law on Monetary Unit and means of payment. German, French and Italian versions.</ref>

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.

[edit] Legal tender in the United Kingdom

In the United Kingdom, only coins valued 1 pound Sterling and 2 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 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. [2]

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.

[edit] 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.

[edit] Legal tender in England and Wales

Bank of England notes are the only banknotes that are legal tender in England and Wales. United Kingdom coinage is legal tender, but not in unlimited amounts for coins below £1.

Scottish and Northern Ireland banknotes, and Jersey, Guernsey, Manx and Gibraltar coinage and banknotes are not legal tender in England and Wales. However, they are not illegal under English law and creditors and traders may accept them if they so choose.

[edit] Legal tender in Scotland

Scots law has, in effect, a broader concept of legal tender. Official legal tender is similar to that of England and Wales (Bank of England notes below the value of five pounds, and Royal Mint coins in varying amounts, but not any Scottish notes). However, since the smallest circulating Bank of England note is £5, the only way to pay large amounts in official legal tender is with £1 and £2 coins.

This is largely irrelevant, however, as creditors are obliged to accept any 'reasonable' settlement of the debt, be it banknotes (Scottish, English or otherwise), coins, cheques (which Scottish notes technically are) 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.

[edit] Legal tender in the United States

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.

31 U.S.C. § 5103.

With respect to private transactions, this has been construed to apply only to "payment for debts when tendered to a creditor."[3]

With respect to accepting a contract offer with performance, tender requires both an offer to perform with the demonstrated ability to perform. If both requirements have been met, that is deemed acceptance by performance.

There being no other federal law prohibiting private businesses, persons or organizations from specifying other methods of payment they choose to accept or refuse, such entitites therefore are free to insist on payment by credit card, for example, or to refuse larger denomination banknotes. Some small stores in the United States have a policy of not accepting large notes, typically above $20, 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.

[edit] 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 successor states of the Soviet Union replacing the Russian 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.

[edit] Withdrawal from circulation

Banknotes and coins may be withdrawn from circulation, but remain legal tender. United States banknotes issued at whatever 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.

[edit] 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".

[edit] See also

[edit] Notes

<references/>de:Gesetzliches Zahlungsmittel es:Moneda de curso legal he:הילך חוקי ja:法定通貨

Legal tender

Personal tools
what is world wizzy?
  • World Wizzy is a static snapshot taken of Wikipedia in early 2007. It cannot be edited and is online for historic & educational purposes only.