Legal Tender Status of Coins

[physics-fan3.14]

Inspired by a post BillJones in This thread, I took a look for myself. Bill Jones said that he thought cents were legal tender up to 50 cents. I had never heard of such a thing, but it turns out that he was (partially) correct.

 

According to the Coinage Act of March 3,1851, silver 3 centers were legal tender up to 30 cents.

 

According to the Coinage Act of April 22, 1864, cent coins were legal tender up to 10 cents, and 2 cent coins were legal up to 20 cents.

 

According to the Coinage Act of March 3, 1865, Copper Nickel Trimes were legal tender up to 60 cents, and fixed the legal tender power of 1 and 2 cents coins at 4 cents.

 

The Coinage Act of May 16, 1866 established the nickel, with a legal tender up $1.

 

I also saw where the half dollar was legal tender up to $5, and minor silver coinage was legal tender up to $10.

 

The Encyclopedia Britanica 1911 edition has this too, however:

"All gold coins and standard silver dollars are legal tender to any amount. Silver coins below the denomination of a dollar are legal tender up to $10, and cent and 5-cent pieces legal tender to an amount not exceeding 25 cents. It falls exclusively within the jurisdiction of Congress to declare paper or copper money a legal tender. "

 

However, there was at least one case where a judge ruled that a payment of $1000 in one cent coins was legal. See this Story See this story. The essential bit is this: "The judge, however, didn't seem to think much of Powell's answer. "I find your choice of conduct to be frivolous and ridiculous," he said. "But I guess you complied by taking legal tender there of $1,000 by the deadline and therefore, I am not going to hold you in contempt." "

 

Having legal tender maxes is common in various other countries. The UK, Australia, New Zealand, Canada, and some Eurozone countries all have maximum legal tender amounts. These are just the ones I could find with a quick search.

 

So, does anyone know of a more recent US coinage act that established the legal tender max of the cent (or other coins)? It might be out there, but I couldn't find it after an hour of looking. Please discuss this new and shocking revelation.

[PerryHall]

Inspired by a post BillJones in This thread, I took a look for myself. Bill Jones said that he thought cents were legal tender up to 50 cents. I had never heard of such a thing, but it turns out that he was (partially) correct.

 

According to the Coinage Act of March 3,1851, silver 3 centers were legal tender up to 30 cents.

 

According to the Coinage Act of April 22, 1864, cent coins were legal tender up to 10 cents, and 2 cent coins were legal up to 20 cents.

 

According to the Coinage Act of March 3, 1865, Copper Nickel Trimes were legal tender up to 60 cents, and fixed the legal tender power of 1 and 2 cents coins at 4 cents.

 

The Coinage Act of May 16, 1866 established the nickel, with a legal tender up $1.

 

I also saw where the half dollar was legal tender up to $5, and minor silver coinage was legal tender up to $10.

 

The Encyclopedia Britanica 1911 edition has this too, however:

"All gold coins and standard silver dollars are legal tender to any amount. Silver coins below the denomination of a dollar are legal tender up to $10, and cent and 5-cent pieces legal tender to an amount not exceeding 25 cents. It falls exclusively within the jurisdiction of Congress to declare paper or copper money a legal tender. "

 

However, there was at least one case where a judge ruled that a payment of $1000 in one cent coins was legal. See this Story See this story. The essential bit is this: "The judge, however, didn't seem to think much of Powell's answer. "I find your choice of conduct to be frivolous and ridiculous," he said. "But I guess you complied by taking legal tender there of $1,000 by the deadline and therefore, I am not going to hold you in contempt." "

 

Having legal tender maxes is common in various other countries. The UK, Australia, New Zealand, Canada, and some Eurozone countries all have maximum legal tender amounts. These are just the ones I could find with a quick search.

 

So, does anyone know of a more recent US coinage act that established the legal tender max of the cent (or other coins)? It might be out there, but I couldn't find it after an hour of looking. Please discuss this new and shocking revelation.

 

The Coinage Act of 1965 made all coins produced by the United States legal tender. Presumably this included Trade Dollars and gold coins, which were demonitized, legal tender once again.

 

 

 

 

[physics-fan3.14]

yes, the coinage act of 1965 made them all legal tender, but I could not see where it set any maximum amount, or overruled previous maximum amounts

[MunkyMan95]

yes, the coinage act of 1965 made them all legal tender, but I could not see where it set any maximum amount, or overruled previous maximum amounts

 

Well seeing as there are a few who pay their tax bills in nickels, I doubt that there is a maximum.

[physics-fan3.14]

yes, the coinage act of 1965 made them all legal tender, but I could not see where it set any maximum amount, or overruled previous maximum amounts

 

Well seeing as there are a few who pay their tax bills in nickels, I doubt that there is a maximum.

 

But sometimes they do, and it is funny

 

http://apnews.myway.com/article/20070815/D8R16P100.html

[jtryka]

It's funny how things flip upsidedown sometimes! Before the Civil War, no paper currency was viewed as legal tender in any amount (in fact during the War of 1812 and later in the 1840s it was ruled unconstitutional), and standard silver dollars and gold coins were always legal tender without exception. Now it's the worthless paper that is considered legal tender and we have to consult law books to figure out whether any coins are legal tender and to what limit!

[Zoins]

Not only that, for a long time foreign coins were legal tender in the US.

[World Colonial]

It's funny how things flip upsidedown sometimes! Before the Civil War, no paper currency was viewed as legal tender in any amount (in fact during the War of 1812 and later in the 1840s it was ruled unconstitutional), and standard silver dollars and gold coins were always legal tender without exception. Now it's the worthless paper that is considered legal tender and we have to consult law books to figure out whether any coins are legal tender and to what limit!

 

As far as I know, the reason paper currency would have been considered unconstitutional is because the Constitution only specifically refers to gold and silver. I do not believe it even refers to copper. There have been statutes such as those referenced in this post, but I do not know whether they are technically constitional because it might be argued that the constitution was never amended. But nobody bothers with that anymore. The Federal Reserve which issues US currency today is actually a privately owned entity.

[PerryHall]

no paper currency was viewed as legal tender in any amoun!

 

That's because paper money was issued by banks, railroads, insurance companies, utilities, and other private parties before the civil war. Some of this paper was more secure than others. The US government didn't issue paper money until 1862 and that was to pay for war materials.

[physics-fan3.14]

no paper currency was viewed as legal tender in any amoun!

 

That's because paper money was issued by banks, railroads, insurance companies, utilities, and other private parties before the civil war. Some of this paper was more secure than others. The US government didn't issue paper money until 1862 and that was to pay for war materials.

 

The Continental Currency was issued by Congress during the war. However, that was quickly overinflated and became essentially worthless. I suppose technically it predates the "US," but it was the government of the land.

[Keleum]

What does it mean to be maximum legal tender? I assume that's fixing a denomination on it?

[DC Dawg]

As far as I know, the reason paper currency would have been considered unconstitutional is because the Constitution only specifically refers to gold and silver.

I do not have my reference with me, but the use of National Bank Notes was challenged to the Supreme Court who allowed their legal tender status. There was another attempt in (I think) 1934 following the withdrawal of gold from circulation with the issuance of federal reserve notes not backed by any metals. The case never went beyond the District court.

 

Don't you think that in 231 years of this republic, that these issues would have been challenged at least once??

 

I do not believe it even refers to copper. There have been statutes such as those referenced in this post, but I do not know whether they are technically constitional because it might be argued that the constitution was never amended.

Constitutional is irrelevant. Any of these laws would be in Title 31 of the United States Code. Currently, there is nothing in 31 U.S.C. that would indicate a limit on the legal tender status of money. Section 5115 specifies the laws for US currency, which has stood the tests of the courts.

 

But nobody bothers with that anymore. The Federal Reserve which issues US currency today is actually a privately owned entity.

The Federal Reserve System is a public corporation of the US government chartered by Congress to carry out the monetary policies of government as agreed upon by the Federal Open Market Committee. The FOMC is part of the Federal Reserve Board which is a bureau under the Department of the Treasury.

 

Each federal reserve branch is owned by the member national banks. A national bank must own 3-percent share of their regional Fed and must maintain that 3-percent in reserve and in deposit at the Fed. In exchange, the Fed provides the monetary services for interbank situations, such as setting the Fed Funds rate and arranging the loans at that rate between banks.

 

Not including collectible currency, the Federal Reserve Banks purchase the currency it needs at face value from the Bureau of Engraving and Printing. By law, only the BEP can print money, just like the only the US Mint can strike legal tender coins. Each Fed branch determines the amount of currency it needs based on its own supply and demand while keeping a reserve required by the rules prescribed the Federal Reserve Board and the FOMC.

 

The individual Federal Reserve Branches may be technically privately owned, but they operate under strict government control, making them a government corporation in the same manner that the US Postal Service is a government corporation.

 

Scott

[DC Dawg]

What does it mean to be maximum legal tender? I assume that's fixing a denomination on it?

It used to be a way to control the amount of coinage spent at a single time to ensure maximum circulation of all coins and not just subsidiary coinage. The examples given above where you could spend only a certain amount of coins at once was how the government attempted this.

 

It was a bad idea that did not last long after enacted--or was ignored.

 

Scott

[BillJones]

There has been and still is a lot of foolishness written about the Federal Reserve Banking System. In reality it is one of the best agencies, regular or quasi, that has ever been created for this nation. Under the leadership of Alan Greenspan, you can thank the Fed for the long period of prosperity that we have just enjoyed.

 

Before one condemns the agency, he or she should study the economic history of this nation before it existed. The 19th and early 20th century money supply was often tied to the amount of gold and silver that was available for circulation. Those with less than an astute knowledge of monetary policy might think that was good thing. The trouble was the needs of the economy for a circulating currency were not and should not be tied to the amount of precious medals a nation possesses. The money supply should be adjusted to the size and activity level of the economy.

 

Sure, politicians could exploit that for short term political gain. But the beauty of the Federal Reserve System is that it is monitored but NOT controlled by the Congress or the President. If a competent Chairman of the Federal Reserve is at the helm, that is a wonderful thing.

 

[World Colonial]

Scott B,

 

I understand what you are saying but I would hardly consider constitutional irrelevant. It is supposed to be, after, the highest legal authority in this country. It just happens that the courts may choose to ignore it when it is not amended.

 

As for the Fed, they purchase FRN from the BEP? With what? My Economics class on Money and Credit stated that FRN were liabilities of the Fed and coins liabilities of the Treasury. Of course, both of those are a complete farce since they have no intrinsic value and cannot be redeemed for anything.

[jtryka]

Technically coins are assets, not liabilities, even the base metal ones. The Fed issues its notes which are backed by Treasury securities, so a liability backed by a liability.

[Conder101]

The Coinage Act of 1965, since it did not set limits on the legal tender status, and since it referred all the way back to the beginning of coinage in this country, effectively gave unlimited legal tender status to all of the coins. Because no matter how many you have you can look back at the act and it simply says they are legal tender, no limits no exceptions.

 

One thing that is important and which no one ever seems to touch on is that "legal tender" does not mean the same thing today as it did in the 19th century. In the 19th century it meant that the item of legal tender MUST be accepted as payment when it was offered. Today it merely means that the tender is a legally acceptable form of payment and that by offering it the debtor has made a legal attempt to settle an obligation. But the creditor is under no obligation to accept the tender offered. And if declined, the obligation still exists, but no additional interest or penalties may be applied.

 

When this change in the meaning of legal tender took place I do not know. I suspect it took place sometime between 1933 and 1968.

 

Not only that, for a long time foreign coins were legal tender in the US

Not as long as you might think. Many people think that foreign coins were legal from 1792 to 1857, but the number of coins that actually were legal tender were quite limited and for many of those years foreign coins were NOT legal tender.

 

As far as I know, the reason paper currency would have been considered unconstitutional is because the Constitution only specifically refers to gold and silver.

That was normally the grounds used to argue against the constitutionality of paper currency but if you actually check the Constitution only refers to gold and silver with respect to the STATES making anything else legal tender. This was basically to prevent the states from conferring legal tender status on the paper money issues of the various private and state banks. In reference to the Federal government it does NOT refer to silver and gold but merely confers upon it the right to create money and regulate its value. No restrictions of how they were to do that were imposed. (Another point of confusion at this point was a poor choice in what verb to use. Many people have seized on the fact that they used the word coin to mean that only gold and silver coins can be money. Coin is also a verb meaning "to create" making the sentence read "the power to create money and regulate the value thereof." Even if it did mean to make coins, it says nothing about gold or silver so they could create thousand dollar coins of aluminum if they wanted.)

[jtryka]

Of course, if we go to the source, we would find some interesting thoughts by our founders on paper currency:

 

According to James Madison's Records of the Federal Convention (See pp 308, 309 and 310), the language authorizing the Congress to emit bills of credit was removed, but a suggestion that an affirmative prohibition be added was not taken up as an amendment. Madison's final footnote read:

 

This vote in the affirmative by Virga. was occasioned by the acquiescence of Mr. Madison who became satisfied that striking out the words would not disable the Govt from the use of public notes as far as they could be safe & proper; & would only cut off the pretext for a paper currency and particularly for making the bills a tender either for public or private debts.

 

 

[Keleum]

With all respect to Mr. Madison, he's not quite the one I would look to for guidance over banking and monetary policy. He was against just about anything resembling a central bank, or a central anything for that matter. Including the standing army he realized he just might need after the war of 1812...

 

I would think Alexander Hamilton would be a better source for guidance on these matters.

 

 

 

[jtryka]

Although a good banker, Hamilton was apparenly not a good note-taker, since even though Hamilton was at the Convention, we only have expansive notes from James Madison.