Legal Tender in the US

Legal tender is a concept that varies from country to country. In many countries, any person or merchant is required by law to accept the legal tender for settlement of a debt. In the US, this is optional.

In the US, private parties can settle debts using any medium they wish and are not required to use a legal tender. However, if you are dealing with the Federal government you will have to use a legal tender to pay taxes and fees and accept it as payment.

Only Congress has the power to declare something a legal tender, and until the 1860s the only legal tenders were coins: US coins and for a while, the Spanish Real. The first paper currency to be a legal tender was the United States Note or Greenback issued by the US Treasury. USNs were authorized by the Legal Tender Act of 1862. This was the country’s first fiat currency.

The act said was that this new currency would be accepted for debts to the US Government, except import duties, that were still only payable in gold coin. The notes, the act added, could also be legally used by the public to settle private debts.

Currently, legal tender is defined in the United States Code: "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues."

This means, just as in the 1860s, that US currency is a legal way to pay debts to the Government and in private transactions. However, it does not mean that private persons or business are legally obligated to accept US coins or banknotes in payment of a debt unless there is a law in an individual state mandating it.