“This note is legal tender, for all debts public and private.” That is the message written on all federal reserve notes, the paper currency produced in the United States. “Legal tender” is a phrase used in law to indicate that something without intrinsic value (paper currency) must be accepted as if it does have value; in the U.S., the rationale for imposing that requirement is that the bills are backed by the “full faith and credit” of the federal government.
In the 20th century, currencies around the world were shifted to this debt-backed system (which might also be called fiat currency, non-convertible notes, and greenbacks) from precious-metal standards, which were seen as actually holding back economic growth rather than regulating it. It’s the largest, and arguably most successful, foray into debt-backed money ever attempted. What it depends upon in part to succeed is the confidence of users that the money they accept they will thereafter be able to spend on a comparable amount of goods or services. Calling it “legal tender” is, in a sense, an official vote of confidence. There was a time when such votes of confidence were phrased as a promise to pay the bearer in gold or silver, but now all that’s needed to keep the system moving is that phrase, printed on federal reserve notes.
Thus far, that promise has inspired enough confidence in some Western nations to keep the money usable. Well, the promise and the implied force of law behind it. What happens if that legal requirement is not universal?
It actually isn’t even remotely universal. Most consumer transactions, as it happens, are not debts and therefore don’t count. Judges have further whittled away at the idea by determining that merchants don’t have to accept all currency; a bus driver is thus allowed to demand exact change, and convenience-store clerks are within their rights when they turn away large bills. Perhaps most egregious are local justices who have determined that they do not need to accept U.S. currency for fines, despite these being the very essence of the word “debt.” In those courtrooms, expect to be asked to pay by certified check, money order, or bank card, each of which has its own associated fees.
As this notion of cash having some value is gradually eroded, at what point does the notion of government-backed money simply dissolve with it? If the point of legal tender laws is the force citizens to accept government debt as money, what does that even mean in a world where no one has to accept the stuff despite those laws? What it means is that the notion of what’s valid and valued might be changing: electronic money is still backed only by government debt, and it’s accepted everywhere from people who happen to have bank accounts with which to credit it.
On its face, just having electronic money isn’t bad, but electronic money comes as a cost. As I detailed in my review of Curse of Cash, divorcing money from the physical makes it easier to manipulate, making it possible to get projects such as wars paid for without public outcry. It’s also more challenging for people who struggle with money management.
Nevertheless, the law as I understand it applies to physical, paper currency, at least in the United States. Without it there would be nothing but market forces determining if our cash is accepted, or in fact our electronic credits, either. Legal tender laws are on the books to prevent the chaos of having to figure out if the boss’ money could be used to buy groceries, or the necessity of keep currency-exchange apps handy when traveling across state — perhaps county — lines.
The way American laws are written offers a convenient loophole: it’s only debts for which currency is legal tender. That excludes retail transactions, exchanges of money for a good or service right now. That’s why a bus driver can refuse anything that isn’t exact change, or a convenience-store manager can decline to accept hundred dollar bills. That’s life under a jurisdocracy (government of attorneys, by attorneys, and for attorneys) in action right there. Never a law was written by a lawyer that isn’t riddled with loopholes.
Debt, however, does include fines levied for breaking laws; it’s part of one’s “debt to society.” Give a call to the local court to see if cash is accepted; it isn’t in my town, and in about half of the towns nearby. I’m told that’s because the justices are liable for money stolen, and rather than learn how to stop hiring criminals (or creating a culture in which stealing is okay), they ban the use of money. One justice told me he believes this is illegal, but until my local court is hit with a lawsuit, that’s never going to change. To that end, I am raising money to sue for the right to pay court fines in cash, as the law requires. The situation as it stands now is unacceptable because it hits the people most likely to accrue such fines with additional costs.
Inconsistent enforcement could be a symptom that legal tender laws are unnecessary, but if that’s the case, they can be rolled back. For now, we’ve got laws, and when they are not enforced consistently it ends up being really unfair to the unbanked, the cash-rich, the undocumented, the homeless, the money-workers, the debt eliminators, and probably many others.