'Legal Tender' is explained in detail and with examples in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
Legal tender proves to be official forms of payment that the nation’s government recognizes for paying either private or public debts or for meeting any number of financial obligations. In nearly all nations, national currency is the one and only legal tender. Creditors have no choice but to receive this currency for repaying of debts owed to them. It is only the appropriately endowed national institutions which are permitted to issue such legal tender. In the United States, this means the U.S. Treasury. In Canada, it refers to the Royal Canadian Mint.
Any type of payment which must be taken for a debt is legal tender. The laws of the land determine which payments are such currencies. This term mostly pertains to money in cash form like coins and bills. It does not include credit cards, bank cards, checks, or lines of credit. Laws which pertain to legal tender are the bedrock in the forming of a country’s fiscal policy for a great number of states.
In the days of the American federalist debates, individuals who sought to restrict the powers of the new central government attempted to force rules restricting the creation of a national central bank and to ensure that the national government could not issue currency. Such positions as those espoused by the anti-federalists were mostly defeated. The U.S. Constitution does in fact forbid individual states from issuing their own currencies, meaning they obtained at least a partial state-level victory.
Following the American war for independence, the fledgling nation utilized a wide range of foreign silver and gold coins in trade. Throughout the American Civil War, these policies had to be altered because of the enormous levels of government debt issued and assumed. Because of these expenditures, the American government chose to start producing paper bills for money. With its landmark ruling in 1965, the U.S. Supreme Court affirmed that all American government issued money, including coins and bills, was legal tender. This meant that it had to be taken in payment of debts by every party within the U.S. They similarly ruled that foreign-issued money is not acceptable for forms of payments.
This Supreme Court ruling did not completely settle the issue once and for all. In 2002, the long simmering topic on the issue of currency rose to the forefront of policy debate once again. It was the introducing of the Legal Tender Modernization Act within the U.S. House of Representatives that set it off once again. Besides various other provisos, the act insisted on the termination in circulation of the penny.
Those in favor of the bill under discussion argued that pennies were worthless as a currency since they could not be utilized in most purchases or with vending machines. They cost significantly more than their face value to make and circulate and depend on heavy metal polluting industries in mining both zinc and copper. Despite its public interest, this bill never moved forward into the Congress. Rather it died a slow death for lack of interest and sponsors following the termination of that year’s lawmaking session.
Among the great debates for the early years of the 21st century, the Europeans adopting the Euro took monetary center stage. A great number of nations had century’s long association with their proprietary and historical national currencies. The switch over to such a common currency format angered the fearful nationalists living within Europe. Around 20 nations eventually joined this new Euro zone and replaced their beloved old currencies with the euro. Most significantly, the U.K., Sweden, and Denmark refused to join and gained exemptions from the common currency requirements and mandate, electing to hold on to their own national currencies instead.