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Legal Tender

What is legal tender?

Legal tender is any medium of exchange accepted by the law for the payment of debts or the fulfillment of financial obligations, such as taxes, contracts, and legal penalties or damages. Almost every country accepts the national currency as legal tender. A debtor may utilize legal tender to repay a creditor, who is required by law to accept it.

Legal tender permits international money transfers, debt settlements, and governmental and private payments. It also secures the use of a single currency and provides money supply flexibility, which reduces transaction costs. Furthermore, it allows the government and central bank to modify their monetary policies in order to stabilize the economy.


Legal Tender Explained

Legal tender is the official currency of a country, which the central bank or other financial institutions regulate. It allows for a flexible money supply. However, having multiple currencies can increase the costs of transactions.

The government recognizes the national currency as the legal way of paying for goods and services. Therefore, people and businesses have no legal reason to refuse it. For example, the U.S. Treasury and the Federal Reserve are in charge of issuing and authorizing coins and dollar bills in the U.S. Likewise, the Australian dollar, which consists of banknotes and coins, is issued by the Reserve Bank of Australia.

Anyone in a contract or transaction must accept any payment made with legal tender money. However, there are some exceptions. For example, the payment is invalid if the government has banned or restricted something.

Legal tender only includes coins and notes that the government issues. Other forms of payment, such as Cheques, credit cards, and cryptocurrencies, are alternatives to legal cash. However, they are still legal because they can be converted into the official currency