Legal Tender

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Definition of Legal Tender: 

Legal Tender is money that has been declared by the government as a valid means of payment of debt and taxes. 

Detailed Explanation:

Legal tender is money, but not all money is legal tender. For example, a creditor must accept five $20 bills to pay a $100 debt, but the creditor could refuse to accept a $100 check. The bills are legal tender and must be accepted by the government or creditor. Checks are also money, but creditors are not required to accept them. In this case, checks meet all of the requirements of money. They are a medium of exchange accepted by most parties. It is a store of value and a measurable value. However, it is up to the discretion of the vendor and not a law to accept checks.

picture of legal tender us dollar bill
The European countries that converted to the euro as its currency declared the euro as its legal tender while discontinuing the use of its old currency as legal tender. For example, the German mark ceased to become legal tender on January 1, 2002, but the Bundesbank still permits people to convert marks to euros. A debit card is not considered legal tender because a merchant is not required to accept the card as a means of payment. 

All legal tender must be accepted by the government to pay its bills and taxes. However private entities may refuse to accept some legal tender as payment for a good or service. For example, a family could pay its student loan in pennies and the government would be required to accept them. However, a car dealership could legally refuse to accept rolls of pennies to purchase a new car. Stores may refuse $50 or $100 bills. 

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