legal tender

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Legal Tender refers to all U.S. coins and currency that issued by the government. U.S. Cash dollars are also a valid form of legal tender. Nonetheless, federal statutes do not require a seller to accept cash as a form of legal tender for payment of goods or services that were rendered. Thus, businesses may establish their own policies regarding whether they will accept cash as legal tender. Legal Tender also includes Federal Reserve notes as well as notes from Federal Reserve Banks and national banking associations for purposes of settling public and private debts, duties, dues, and taxes. Legal tender generally does not include personal checks, credit cards, or other general forms of noncash payments. In some instances, foreign currency may be accepted as legal tender. Additionally, legal tender can only be used in regard to paying off debts.

The purpose and function of legal tender is for courts to determine whether it is a satisfactory payment for monetary debt. Each jurisdiction can define its specific limits of what is legal tender but generally it is anything when offered (tendered) and accepted in order to pay off the debt. Although the original creditor who is owed money is not necessarily obligated to accept the tendered payment, the specific act of tendering the payment absolves the debt.

[Last updated in June of 2020 by the Wex Definitions Team]