Payment and tender

[Dave Birch] We’re previously discussed the Snap Cafe in Washington, an establishment of some note to Digital Money debaters because the owner stopped taking cash. As I recall, there was some discussion about whether it is legal to do this, since Federal Reserve Notes (ie, greenbacks) are legal tender in the U.S.A. so the cafe owner could not refuse them. I came across some interesting clarification in a paper from the New Zealand. It’s called Payments and the concept of legal tender by Nick McBride, Legal Counsel, Reserve Bank of New Zealand. The paper describes what happened last year, when the coins in New Zealand changed. The new coins were introduced on 1st July 2006. For a period of three months, the old coins were circulating in parallel with the new, but some retailers put up signs saying that they wouldn’t accept the old coins. This, presumably, was because they didn’t want the hassle of having to bag them all up and take them to the bank to swap for new coins. So could they refuse to take the old coins in payment even though they were legal tender? The answer is yes (sort of).

Technorati Tags: cashless, coins, money, regulation

As was observed in the discussion of the Snap Cafe, you cannot force a retailer to accept cash. If, however, you buy something from them and there is no contractual barrier to the use of cash, and you offer legal tender in payment, and they refuse it, then they cannot enforce the debt in court. So if you incur a debt, you can discharge it with legal tender, but you cannot be forced to incur the debt in the first place, if you see what I mean. This came up again today: a Techdirt story about Apple refusing to accept cash for iPhones and insisting on credit cards conveniently had a link to the relevant U.S. Treasury page.

Incidentally, I heard on BBC radio that it now costs the U.S. mint approximately 1.7 cents to make a penny and an astonishing 10 cents to make a nickel. This isn’t (entirely) because it’s a government-run industry but because of the metal content of the coins. U.K. “copper” coins are actually steel with copper plating and so safe from melting down for the time being (but the face value of the pre-1992 copper coins is below the scrap value). No-one here will be melting down coins to make more valuable razor blades (as they do in Bangladesh) just yet!

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]