Legal Tender

Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency and coins are common forms of legal tender in many countries. The origin of the term "legal tender" is from Middle English tendren, French tendre (verb form), meaning to offer. The Latin root is tendere (to stretch out), and the sense of tender as an offer is related to the etymology of the English word extend (to hold outward). The noun form of a tender as an offering is a back-formation of the noun from the verb.

Legal tender is variously defined in different jurisdictions. Formally, it is anything which when offered in payment extinguishes the debt. Thus, personal cheques, credit cards, debit cards, and similar non-cash methods of payment are not usually legal tender. The law does not relieve the debt obligation until payment is accepted. Coins and banknotes are usually defined as legal tender. Some jurisdictions may forbid or restrict payment made other than by legal tender. For example, such a law might outlaw the use of foreign coins and bank notes or require a license to perform financial transactions in a foreign currency.

In some jurisdictions legal tender can be refused as payment if no debt exists prior to the time of payment (where the obligation to pay may arise at the same time as the offer of payment). For example vending machines and transport staff do not have to accept the largest denomination of banknote. Shopkeepers may reject large banknotes: this is covered by the legal concept known as invitation to treat. However, restaurants that do not collect payment until after a meal is served must accept that legal tender for the debt incurred in purchasing the meal.

The right, in many jurisdictions, of a trader to refuse to do business with any person means a purchaser may not insist on making a purchase and so declaring a legal tender in law, as anything other than an offered payment for debts already incurred would not be effective.

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