- For the song made by The B-52's,
see Legal Tender .
Legal tender or
forced tender is
an offered
payment that, by
law, cannot be refused in settlement of a
debt, and have the debt remain in force.
Currency is the most common form of legal
tender.
The origin of the word is from Middle English
tendren,
from Anglo-French
tendre (verb form), meaning
to
offer. The
Latin root is
tenēre (to hold),
and the sense of
tender as an
offer is related to
the etymology of the English word
extend (to hold
outward). The noun form of a
tender as an
offering is a back-formation of the noun from the
verb.
Legal tender is variously defined in different
jurisdictions. Formally, it is anything which
when offered in payment extinguishes the debt. Thus, personal
cheques,
credit
cards,
debit cards and similar
non-cash methods of payment are not usually legal tender. The law
does not relieve the debt until payment is accepted.
Coins and
note are usually
defined as legal tender. Some jurisdictions may forbid or 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 (where the obligation to
pay may arise at the same time as the offer of payment). For
example
vending machines and
transport staff do not have to accept the largest denomination of
banknote. Shopkeepers can reject large banknotes — this is covered
by the legal concept known as
invitation to treat. However,
restaurants that do not collect payment until
after a meal is served would have to accept that legal tender for
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 in law, as anything other
than an offered payment for debts already incurred, would not be
effective.
In Australia
In
Australia, the creation of legal
tender, in the form of notes and
base
metal coins, is the exclusive right of the Commonwealth
Government. According to the
Commonwealth Of Australia Act - Sect 115, which
states: "A State shall not coin money, nor make anything but gold
and silver coin a legal tender in payment of debts."
Under this provision
the Perth
Mint
, owned by the Western Australian
Government, still produces gold and silver coins
with legal tender status, the Australian Gold Nugget and Australian Silver
Kookaburra. These, however, although having the of
status of legal tender, are almost never circulated or used in
payment of debts, and are mostly considered
bullion coins.
Australian notes are legal tender, as established by the
Reserve Bank Act 1959 for all amounts.
Australian coins for
general circulation, now produced at the Royal Australian
Mint
in Canberra
, are also
legal tender, under the provisions of the Currency Act 1965, but only for the following
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 face value is greater than $10 are
offered.
The one cent and two cent coins have been withdrawn from
circulation since 1994, 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.
Many businesses in Canada are willing to accept United States
dollars in discharge of debt, despite United States currency not
being legal tender in Canada.
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 country, 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.
European Regulation EC 974/98 limits the number of coins that can
be offered for payment to fifty. National laws may also impose
restrictions as to maximal amounts that can be settled by coins or
notes.
In France
Historically, legal tender was enacted the
first time in 1870 for all notes and coins of the Banque de
France
. Anyone refusing such monies for their whole
value would be prosecuted (
French
Penal Code art. R. 642-3).
In the Republic of Ireland
- See also: Coinage of 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.
In India
The
Indian rupee is the de-facto
legal tender currency in India
.
The Indian
rupee is also legal tender in Nepal
and Bhutan
, although
the Nepalese rupee and Bhutanese ngultrum are not legal tender
in India. The value of both the Nepalese rupee and Bhutanese
ngultrum are pegged with the Indian rupee.
In
previous times, the Indian rupee was regarded as an official
currency of other countries, including the Straits
Settlements
(now Singapore
and parts of Malaysia
), Kuwait
, Bahrain
, Qatar
, and the
Trucial States (now the UAE
).
In 1837, the Indian rupee was made the sole official currency of
the Straits Settlements, as it was administered as a part of India.
In 1845, the British replaced the Indian rupee with the
Straits dollar after administration of the
Straits Settlements separated from India earlier in that same
year.
After
partition of India and Pakistan
in 1947, the
Pakistani Rupee
came into existence, initially using Indian coins and Indian
currency notes simply overstamped with the word "Pakistan". New
coins and banknotes were issued in 1948.
The Gulf
Rupee, also known as the Persian Gulf
Rupee (XPGR), was introduced by the Government of India as a replacement for
the Indian rupee for circulation exclusively outside the country
with the Reserve
Bank of India
Amendment Act May 1, 1959. This creation of
a separate currency was an attempt to reduce the strain put on
India's foreign reserves by gold smuggling.
Two states, Kuwait and Bahrain eventually replaced the Gulf rupee
with their own currencies (the
Kuwaiti
dinar and the
Bahraini dinar)
after gaining independence from Britain in 1961 and 1965,
respectively.
On 6 June 1966, India devalued the rupee. To avoid following this
devaluation, several of the states using the rupee adopted their
own currencies. Qatar and most of the Trucial States adopted the
Qatar and Dubai riyal, whilst Abu Dhabi
adopted the
Bahraini dinar. Only Oman
continued to use the Gulf rupee until 1970, with the government
backing the currency at its old peg to the pound. Oman later
replaced the Gulf rupee with its own
rial
in 1970.
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 led 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 tenderstatus 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 Singapore and Brunei
The
Singapore dollar is legal tender in
Brunei
since a
Currency Interchangeability Agreement was signed on
1967-06-12. Brunei dollar
banknotes (but not coins) are widely accepted throughout Singapore
and represent a "customary tender".
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.
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.
The Swiss
franc is also the legal tender of the Principality of Liechtenstein
, which is joined to Switzerland in a customs union.
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
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.
England and Wales
Bank of England notes are the
only banknotes that are legal tender in England
and Wales
and are
issued for in the amount of £5, £10, £20 and £50. United Kingdom coinage is legal tender, but
in limited amounts for coins below £1.
Scotland and Northern Ireland
Scottish and Northern Irish bank notes are issued by retail banks
rather than a national central bank, and as such are technically
promissory notes rather than
legal tender. Furthermore, Bank of
England notes are only legal tender within England and Wales, and
therefore these also have the legal status of promissory notes in
Scotland and Northern Ireland. However, general agreement between
banks within the United Kingdom is to treat all notes as legal
tender. (See
British
bank notes.)
Coins
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. In
accordance with the Coinage Act 1971,
gold sovereigns are also legal tender for any
amount. The face values of sovereigns are 50p, £1, £2 and £5; their
value in material worth is much higher. 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.
In the United States
The
U.S. Constitution,
Art.
I Sec.
10 Cl.
1, states, in part:
No State shall ... coin Money; emit Bills of Credit;
make any Thing but gold and silver Coin a Tender in Payment of
Debts; ...
During the early
American Civil
War, the federal government first issued United States
Demand Notes (the first greenback notes) which
were redeemable in gold and silver coin, which were then in
shortage due to hoarding. However, due to eventual difficulties in
redeeming Demand Notes, a money-strapped Congress which had to pay
for the war, eventually adopted the
Legal Tender Act of 1862, issuing
United States Notes backed only
by treasury securities, and compelling people to accept these as
payment for debts. Thus forced to accept federal banknotes, the
recipients wanted to be able to use them to pay their own debts to
each other, and this led to litigation from those who did not want
to accept them, but instead preferred coin.
The United
States Supreme Court
ruled the practice unconstitutional in Hepburn v. Griswold in 1870, but later reversed
this decision following the appointment of two new judges by
President
Ulysses S Grant. The Court
held that paper money, even that not backed by specie such as the
United States Notes can be legal
tender, in the
Legal Tender
Cases, ranging from 1871 to 1884.
On the other hand, coins made of gold or silver may not necessarily
be legal tender, if they are not fiat money in the jurisdiction
where they are preferred as payment.
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.
.
This statute means that all United States money as identified above
are a valid and legal offer of payment for debts when tendered to a
creditor in the U.S.
Some businesses in Florida and other states frequented by large
numbers of
Canadian snowbirds are
willing to accept Canadian dollars in discharge of debt, despite
Canadian currency not being legal tender in the United
States.
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
coin-operated ticketing machines that used it. . Old coins returned
to the Royal Mint through the UK banking system will be redeemed
for legal tender without time limits, however coins issued before
1947 have a higher value for their silver content than for their
monetary value.
- Currencies used in the Eurozone before
being replaced by the Euro, are not legal
tender but all banknotes are redeemable for euros for a minimum of
10 years, some have no time limit.
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, however the Bank of England does redeem all Bank of
England banknotes for legal tender at its counters in London (or by
post) regardless of how old they are. Banknotes issued by retail
banks in the UK are not legal tender, however one of the criteria
for legal protection under the Forgery and Counterfeiting Act is
that banknotes must be payable on demand, therefore withdrawn notes
remain a liability of the issuing bank without any time
limits.
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). Legally, those coins and
banknotes were considered non-decimal sub-divisions of euro.
When the
Iraqi 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.
See also: Monetisation, Remonetisation
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 or by post.
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
Notes
- Definition of tender as verb, in
Merriam-Webster, accessed July 13, 2009.
- http://www.country-data.com/frd/cs/bhutan/bt_glos.html
- Art. 3 of the Swiss law on Monetary Unit and means of payment.
German, French and Italian versions.
- Royal Mint - Legal Tender
- The Legal Basis of Scottish Banknotes, James
Hayes
-
http://www.england-legislation.hmso.gov.uk/acts/acts1971/pdf/ukpga_19710024_en.pdf
replacing the Soviet
ruble in the 1990s.
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