Treasury Legal Tender

The relevant part of the law that applies to your question is the Currency Act of 1965, specifically 31 U.S.C. 5103, entitled “Legal tender,” which states: “The coins and currencies of the United States (including Federal Reserve notes and circulation notes of Federal Reserve banks and national banks) are legal tender for all debts, public charges, taxes and duties. On small U.S. bills, the U.S. Treasury seal and serial numbers are printed in red (unlike Federal Reserve notes, where they appear in green). When the Treasury introduced the small format in 1928, the Federal Reserve system had existed for fifteen years and the need for U.S. notes had diminished. The notes were mainly issued in the 1928, 1953 and 1963 series in denominations of 2 and 5 US dollars. There was a limited issue of $1 bills in the 1928 series, most of which were published in Puerto Rico in 1948, and an issue of $100 notes in the year of the 1966 series, primarily to meet legal requirements to maintain the prescribed amount in circulation after the discontinuation of the $2 and $5 denominations in August 1966. The BEP also printed $10 bills in the 1928 series, but did not issue them. One example was exhibited at the 1933 World`s Fair in Chicago. Some currencies, such as the US dollar and the euro, are used as legal tender in countries that do not issue their own currency or have found the stable dollar preferable to their own currency. For example, Ecuador introduced the U.S.

dollar as legal tender in 2000 after Ecuador`s currency, sugar, rapidly devalued, so that $1 was worth $25,000. The adoption of the U.S. dollar as the primary legal tender is colloquially referred to as “dollarization,” although this practice is commonly referred to as currency substitution. Legal tender guaranteed that creditors had to accept banknotes even if they were not backed by gold, bank deposits or government reserves and had no interest. However, the first legal tender law did not make banknotes as legal tender unlimited because they could not be used by traders to pay import duties and could not be used by the government to pay interest on their bonds. The law stipulated that the bonds would be available from the government for short-term deposits at an interest rate of 5% and for the purchase of bonds at 6% interest at 20 years at par. The justification for these conditions was that the Union Government would preserve its solvency by supporting the value of its bonds by paying its interest on the gold. At the beginning of the war, customs duties accounted for a large portion of the government`s tax revenue, and by making them payable in gold, the government generated the coin needed to pay interest on bonds.

Finally, making the bonds available for purchase at par in US debt securities would also confirm the value of the latter. [3] Restrictions on legal tender were quite controversial. Thaddeus Stevens, chairman of the House Ways and Means Committee, which drafted an earlier version of the legal tender law that would have made U.S. notes legal tender for all debts, condemned the exceptions, calling the new law “malicious” because it made U.S. bills a currency deliberately devalued by the masses. while the banks that lent to the government got “sound money” in gold. This controversy continued until the exemptions were repealed in 1933. 31 U.S.C. § 5119(b)(2) was amended by the Riegle Community Development and Regulatory Improvement Act of 1994 (Public Law 103-325) as follows: “The Secretary has no obligation to reissue U.S. bank notes upon redemption. This does not change the legal tender status of U.S. bonds, nor does it require a recall of notes already in circulation.

This provision means that U.S. tickets will be cancelled and destroyed, but will not be reissued. This will ultimately lead to a reduction in the amount of these outstanding bonds. [28] “Legal tender” is a term used in the Federal Reserve Act, the law that empowers the Board of Governors of the Federal Reserve System to issue Federal Reserve notes. The law states that Federal Reserve notes “are bonds of the United States and must be obtained from all national and member banks and Federal Reserve banks, as well as for all taxes, duties, and other public charges. They will be exchanged for legal money upon request from the U.S. Department of the Treasury, the City of Washington, the District of Columbia or any Federal Reserve bank. However, the law did not define the term “legal tender,” but until 1913, the only currency issued by the United States that was legally recognized as “legal tender” was various issues of “demand notes” (later known as “demand notes”) and “United States notes” approved by Congress during the Civil War. However, there are some exceptions. In 2018, in the face of devastating hyperinflation, Venezuelan President Nicolas Madura ordered all federal institutions to accept a new electronic currency, the Petro, as legal tender. The Venezuelan Petro is centrally controlled by the Venezuelan government based on its own assessment of the value of its natural resources.

It has been claimed that the Petro is backed by Venezuela`s natural gas, mineral and oil reserves. However, Venezuela`s experience with the Petro has not progressed much, and the Petro, despite its status as legal tender, does not generally circulate in the form of currency. In the United States, the recognized legal tender consists of Federal Reserve notes and coins. Creditors are required to accept it as an offer of payment to settle a debt; However, unless prohibited by state law, private companies may refuse to accept some or all forms of cash offers unless a transaction has already taken place and the customer has not been at fault. You may have wondered why businesses sometimes refuse to accept payments in large bank notes such as the $100 bill or payments exclusively in small coins such as pennies, since cash and coins are legal tender. Indeed, federal law leaves individuals and businesses free to issue their own guidelines on the forms of payment they accept, subject to state law. Conspiracy theorists often argue that modern legal tender is worthless and that the global economy is built on a lie. While it is true that legal tender is no longer backed by something like gold, the country`s continued economic growth makes our monetary system self-validating. The value of the dollar is not a lie, but a legal fiction that reflects economic reality.

Shortly after the ban on private ownership of gold in 1933 (which was lifted in 1974), all remaining types of currency in circulation, national bank notes, silver certificates, Federal Reserve notes, and U.S. notes, were exchangeable by individuals only for cash. Eventually, even the redemption of money stopped in June 1968, at a time when all U.S. currency (coins and paper) was being converted into fiat money. For the general public at the time, there was little to distinguish U.S. notes from Federal Reserve notes. As a result, public circulation of U.S. notes in the form of $2 and $5 bills ceased in August 1966 and was replaced by $5 Federal Reserve notes and eventually $2 bills.

U.S. notes became scarce in local commerce, and beginning in 1966, the Treasury converted the outstanding balance into new U.S. notes worth $100, most of which were not spent in bank vaults. The US$100 notes of the 1966 and 1966A series were printed from 1966 to 1969, with public circulation officially ending on January 21, 1971. [22] In September 1994, the Riegle Improvement Act relieved the Treasury of its long-standing obligation to keep U.S. banknotes in circulation. Just prior to the Riegle Act, the Treasury considered putting into general circulation its large remaining stock of unissued U.S. $100 notes, but with the recently revamped 1996 series of $100 Federal Reserve notes, it was decided that confusion would likely arise with the sudden appearance of two very different $100 notes in circulation. [23] The Treasury announced in 1996 that the remaining stock of $100 worth of U.S. notes had been destroyed. [24] However, the law did not explicitly define what legal money means. Because some currencies that could be used as “legal cash reserves” by national banking associations were not considered legal tender, Congress amended the Federal Reserve Act in 1933 to include all U.S.

coins and currencies as legal tender for all purposes. In general, legal tender can take two basic forms. A government can simply ratify a market-based commodity money like gold as legal tender and agree to accept the payment of taxes and execute contracts denominated in that commodity. Alternatively, a government may declare a counterfeit commodity or a worthless token as legal tender, which then adopts the characteristics of a fiat currency. The small Republic of the Marshall Islands (RMI) has also announced that it will introduce a new cryptocurrency, the Sovereign, as legal tender. The state will be tied to an existing, decentralized peer-to-peer cryptocurrency market. Currently, the U.S. dollar acts as currency and legal tender in the RMI and will continue to do so alongside the new legal tender when the government begins issuing states. This law means that all U.S. funds, as noted above, constitute a valid and legal offer to pay the debt when offered to a creditor. However, there is no federal law requiring a private company, person, or organization to accept currency or coins as payment for goods and/or services. Private companies may develop their own policies on whether or not to accept cash, unless a state law provides otherwise.

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