Legal tender

From Academic Kids

Legal tender is payment that cannot be refused in settlement of a debt.

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-currency methods of payment are not generally defined as legal tender. Some jurisdictions may forbid by law, or otherwise restrict, payment other than by legal tender (for example, by outlawing the use of foreign coins and banknotes, or by requiring a licence to perform financial transactions in a foreign currency).

As legal tender can be refused until a person is in debt, 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. However, restaurants that do not collect money until after a meal is served would have to accept any legal tender, though they would not be obliged to provide change – the restaurant is not in debt, it has been given a gift.

The right 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 be redundant.


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.

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.


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.

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.

Legal tender in Scotland

A more restrictive definition of legal tender exists in Scotland. Scottish banks retain their historic right to issue their own banknotes, but no banknotes are legal tender in Scotland (not even Scottish notes).

Legal tender in the United States

As laid down in the United States Coinage Act of 1965, all coins and currencies of the United States, regardless of when coined or issued, shall be legal-tender for all debts, public and private, public charges, taxes, duties and dues.This excuses the several States from the prohibition laid on them in the United States Constitution (Article I Section 10) against making anything other than gold or silver coin a legal tender.

However, US federal law does not restrict private businesses, persons or organizations in what methods of payment they choose to accept or refuse. Businesses are therefore free to insist on payment by credit card, for example, or to refuse larger denomination banknotes. In fact, 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. Even further though, legal tender laws do not preclude businesses from choosing to reject U.S. dollars for payment altogether. In this regard legal tender laws do not pertain to voluntary transactions.The occasional practice of offering large quantities of small denomination coins to pay resented debts is restricted by regulations limiting the use of "subsidiary" and "minor" coins (those with denominations of less than one dollar) similar to the Canadian ones listed below.

Legal tender in Canada

Only 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.

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 coins in the range 50 to $10 inclusive are offered;
  • to any value if coins of value greater than $10 are offered.

The 1 and 2 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.


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'.

Legal tender in the eurozone

Euro coins and banknotes became legal tender 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.

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.


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


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 (p 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, and 3d) were withdrawn later in 1971. Non-decimal coins with precise decimal equivalents (6d ( = 2p), 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 Soviet 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.

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.


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".es:Moneda de curso legal ja:法定通貨 he:הילך חוקי


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