Legal tender
Legal tender is a form of money that courts of law are required to recognize as satisfactory payment in court for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything which, when offered in payment of a debt, extinguishes the debt. There is no obligation on the creditor to accept the tendered payment, but the act of tendering the payment in legal tender discharges the debt.
It is generally only mandatory to recognize the payment of legal tender in the discharge of a monetary debt from a debtor to a creditor. Sellers offering to enter into contractual relationship, such as a contract for the sale of goods, do not need to accept legal tender and may instead contractually require payment using electronic methods, foreign currencies or any other legally recognized object of value.
Coins and banknotes are usually defined as legal tender in many countries, but personal checks, credit cards, and similar non-cash methods of payment are usually not. Some jurisdictions may include a specific foreign currency as legal tender, at times as its exclusive legal tender or concurrently with its domestic currency.
Etymology
The term legal tender is from Middle French tendre, meaning to offer. The Latin root is tendere, and the sense of tender as an offer is related to the etymology of the English word extend.Withdrawal and replacement
Demonetization is the act of stripping a currency unit of its status as legal tender. It occurs whenever there is a change of national currency: the current form or forms of money is or are pulled from circulation and retired, often to be replaced with new notes or coins. Sometimes, a country completely replaces the old currency with new currency. The opposite of demonetization is remonetization, in which a form of payment is restored as legal tender. Coins and banknotes may cease to be legal tender if new notes of the same currency replace them or if a new currency is introduced replacing the former one. Examples of this are:- During the Nazi occupation of the Netherlands, 500- and 1000-guilder banknotes were demonetized, and after liberation, 100-guilder notes were also demonetized. Anne Frank in her diary entry on 19 March 1943 notes:Piet Lieftinck's measure of demonetizing 100-guilder notes was aimed at war profiteers.
- On 6 October 1944, the recently repatriated Belgian government demonetized banknotes greater than 100 francs. People having 100 francs were allowed to exchange up to 2000 francs per household for new banknotes. Banks added withdrawal limits and current accounts were frozen.
- The Government of Ceylon passed the Prevention of the Avoidance of Income Tax Act on 26 October 1970, demonetized all currency notes of the denominations of Rupees 50 and 100, bearing a date prior to that of the demonetization.
- The United Kingdom adopted decimal currency in place of pounds, shillings and pence in 1971. Banknotes remained unchanged. In 1968 and 1969 decimal coins which had precise equivalent values in the old currency were introduced, while decimal coins with no precise equivalent 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 were withdrawn later in 1971. Non-decimal coins with precise decimal equivalents remained legal tender either until the coins no longer circulated, or the equivalent decimal coins were reduced in size in the early 1990s. The London Underground coin-operated machines were used until the next generation appeared in the 1980s. Old coins returned to the Royal Mint through the UK banking system will be redeemed by exchanging them for legal tender currency with no time limits; however, coins issued before 1947 have a higher value for their silver content than for their monetary value.
- As part of their economic warfare operations during the Angolan Civil War, South African intelligence produced and disseminated counterfeit Angolan currency. In late 1980, counterfeit 100 Kwanza notes began to appear in Huambo and spread to other large cities in the northwest. On February 4, 1981 at a commemoration of 20 years of struggle by the MPLA, Jose Eduardo dos Santos announced that the old notes would be withdrawn and exchanged with new notes. The old notes featured the previous president, Agostinho Neto, while the new notes showed him and dos Santos in profile, which became a standard feature on other designations.
- The successor states of the Soviet Union replacing the Soviet ruble in the 1990s.
- The successor states of Yugoslavia replacing the Yugoslav dinar in the 1990s and 2000s.
- Currencies used in the Eurozone which were replaced by the euro were then not legal tender, but all banknotes and coins were redeemable for euros for a minimum of 10 years.
- India demonetized its 500 and 1000 rupee notes on 8 November 2016. This action affected 86 per cent of all cash in circulation. The demonetization action was intended to curb counterfeit notes and black money, the hoarding of unaccounted cash, and sponsorship of terrorism, but also led to long queues from bank runs, leaving more than 30 people dead. The old notes were replaced by new 500 and 2000 rupee notes.
- The Philippines has ceased 2 peso and 50 centavo coins of the Flora and Fauna Series in 2000, due to over minting of the coins of the BSP Series that has not included the 2 peso and 50 centavo coins of that series.
In the case of the euro, coins and banknotes of former national currencies were in some cases considered legal tender from 1 January 1999 until various dates in 2002. Most countries continued to exchange pre-euro notes and coins for a period of time; as of 2025, Ireland, Germany, Austria, Belgium, Luxembourg, and the Netherlands continue to exchange some or all of their coins and banknotes withdrawn in 2002. Legally, those coins and banknotes were considered non-decimal sub-divisions of the euro.
When the so-called "Swiss" dinar ceased to be legal tender in Iraq, it still circulated in the northern Kurdish regions. Despite lacking government backing, it had a stable market value for more than a decade.
This is also true of the paper money issued by the Confederate States of America during the American Civil War. The 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.
During World War II the United States printed a series of Hawaii overprint notes as an emergency issue after the attack on Pearl Harbor. The intent of the overprints was to easily distinguish United States dollars captured by the Imperial Japanese Armed Forces in the event of an invasion of Hawaii and render the notes worthless via demonetization.
Demonetization is currently prohibited in the United States, and the Coinage Act of 1965 applies to all US coins and currency regardless of age. The closest historical equivalent in the US, 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. Now, however, even surviving pre-1933 gold coins are legal tender under the 1964 act.
Withdrawal from circulation
Currency may be withdrawn from circulation but remain legal tender. They may be actively removed from circulation, or their production may simply be ceased.In 1989, the Bank of Canada withdrew the $1 banknote. It retained its status of legal tender, however its production was halted, and the $1 was set to replace it. On September 29, 2000, the production of the $1,000 banknote was suspended, and these notes were actively pulled out of circulation for destruction. As of January 1, 2021, the $1, $2, $25, $500, and $1000 withdrawn banknotes have been demonetized and are no longer legal tender. The Bank of Canada continues to accept them at face value despite their lack of legal tender status.
United States banknotes issued at any date remain legal tender even after they are withdrawn from circulation. Bank of England notes that are withdrawn from circulation generally cease to be legal tender but 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 are still legal tender; however, 1-, 2- and 5-cent coins are no longer used in New Zealand.