Legal tender is a form of money that the law recognises as valid for the discharge of a monetary debt in a jurisdiction. What constitutes legal tender varies between jurisdictions.Paul M. Horvitz, Monetary Policy and the Financial System, p. 14, Prentice-Hall, 3rd ed. (1974).
However, legal-tender status generally does not require a seller to accept a particular form of payment before entering into a transaction. Businesses may therefore set the terms on which they accept payment, including electronic payment methods, foreign currencies or other means of payment where permitted by law.
In most countries, coins and banknotes are legal tender, whereas cheques, credit cards and other non-cash payment methods are generally not. Some jurisdictions recognise a foreign currency as legal tender, either alongside or instead of a domestic currency. Governments may also withdraw legal-tender status from a currency through demonetisation or introduce a new legal tender to replace an existing one.
Etymology The term legal tender is from Middle French tendre (verb form), meaning to offer. The Latin root is tendere (to stretch out), and the sense of tender as an offer is related to the etymology of the English word extend (to hold outward)."Tender Definition & Meaning" in Merriam-Webster. . Retrieved 13 July 2009.
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, the first post-Nazi occupation Minister of Finance, demonetized the 100-guilder notes in July 1945 as a measure intended to target 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 (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 – 1, 2, and 10 shillings respectively) were introduced, while decimal coins with no precise equivalent (½p, 1p, 2p – equal to 1.2d (old pence), 2.4d and 4.8d respectively) 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 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 (for certain notes and coins, there is no time limit). 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.
Individual coins or banknotes can be demonetized and cease to be legal tender (for example, the pre-decimal United Kingdom farthing or the Bank of England 1 pound note), but the Bank of England does redeem all Bank of England banknotes by exchanging them for legal tender currency at its counters in London (or by post) regardless of how old they are. Banknotes issued by retail banks in the UK (Scotland and Northern Ireland) are not legal tender, but 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 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 (which never happened, as the Confederacy was defeated and dissolved).
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 (which never happened) and render the notes worthless via demonetization.Friedberg, Arthur L. & Ira S. (2008) The Official Red Book. A Guide Book Of United States Paper Money: Complete Source for History, Grading, and Prices (Second Edition) Whitman Publishing , pg. 20
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 coin 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 (and 1- and 2-dollar notes until 1993) are still legal tender; however, 1-, 2- and 5-cent coins are no longer used in New Zealand.
Cashless society
A cashless society is an economic state whereby financial transactions are not conducted with money in the form of physical banknotes or coins. Cashless societies have existed, based on barter and other methods of exchange. In modern usage, the term usually refers to financial transactions conducted by transfer of digital information (usually an electronic representation of money) between the transacting parties.
Commemorative issues 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 (though no Scottish banknotes nor notes from Northern Ireland are legal tender in the United Kingdom). 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.
Status by country
Australia The Australian dollar, comprising notes and coins, is legal tender in Australia. Australian notes are legal tender by virtue of the Reserve Bank Act 1959 (Cth) s 36(1), without an amount limit. The Currency Act 1965 (Cth) similarly provides that Australian coins intended for general circulation are also legal tender, but only for the following amounts: Not exceeding 20c if 1c and/or 2c coins are offered, Not exceeding $5 if any of 5c, 10c, 20c and 50c coins are offered, Not exceeding 10 times the face value if the coins offered are greater than 50c up to and including $10, To any value for coins of other denominations above $10.CURRENCY ACT 1965