What makes legal currency legal?

[Gjorp]

Basically, if an American storekeeper says “I’ll only accept Mexican pesos, and don’t you dare try to pay with anything else.” what’s stopping him? Is he legally obligated to accept American dollars? What if he only wants to accept buckskins or dandylions? Or does the legal just mean, that’s what you pay taxes with and that’s what they tax?

BTW, I did use the example of an American, but I’m really Canadian and would appreciate to learn about any of the countries you would happen to know of.

[brianmelendez]

United States law provides:

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. Foreign gold or silver coins are not legal tender for debts.

31 U.S.C. § 5103.

[brianmelendez]

From the US Department of the Treasury, http://www.ustreas.gov/education/faq/currency/legal-tender.html:

Question - I thought that United States currency was legal tender for all debts. Some businesses or governmental agencies say that they will only accept checks, money orders or credit cards as payment, and others will only accept currency notes in denominations of $20 or smaller. Isn’t this illegal?

Answer - The pertinent portion of law that applies to your question is the Coinage Act of 1965, specifically Section 102. This is now found in section 392 of Title 31 of the United States Code. The law says that: “All coins and currencies of the United States, regardless of when coined or issued, shall be legal-tender for all debts, public and private, public charges, taxes, duties and dues.”

This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services. Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise. For example, a bus line may prohibit payment of fares in pennies or dollar bills. In addition, movie theaters, convenience stores and gas stations may refuse to accept large denomination currency (usually notes above $20) as a matter of policy.

Likewise, from the Bank of England, http://www.bankofengland.co.uk/banknotes/legaltender.htm:

Legal Tender and the Promise to Pay

Legal Tender

The concept of legal tender is often misunderstood. Contrary to popular opinion, legal tender is not a means of payment that must be accepted by the parties to a transaction, but rather a legally defined means of payment that should not be refused by a creditor in satisfaction of a debt.

[Reeder]

What makes legal currency legal?

Basically because the government says it is. Nothing but their word backing it up.

[whisky_coke]

*Originally posted by Reeder *
**Basically because the government says it is. Nothing but their word backing it up. **

Other than their words, it’s a stable money supply that makes people accept a currency.

[oldman_withers]

From a gross economic standpoint, most legal currency, historically and currently, is backed up by a few generally accepted but suprisingly abstract concepts. Some of these, such as god/s, heads of state, symbols of peace/war, etc are featured on the currency to reinforce its validity. Also, the influence of the government who issues the currency can have an effect on the value of said currency, usually in an obvious way i.e. the government collapses, the currency is worthless in general.