What is a legal tender law?
Over the years, there has been some discussion about
“legal tender laws” in the United States. I talked to a legal expert about
it, and discovered – as I suspected – that it doesn’t mean quite the same
thing as many people think it does. Here is my (non-expert) explanation.
The present legal tender law in the U.S. is Section
5103 of title 31, United States Code, which
reads:
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.
Contrary to popular imagination, this does not ban people
from using other forms of currency. It simply defines what a “dollar” is, in
a contract or obligation that is denominated in dollars. You could make a
contract denominated in Bitcoin, if you want to. You could make a contract
denominated in euros. You could even make a contract defined in “gold
dollars”, or something of that sort. But, if the contract is simply for “dollars,”
then this statute defines, for legal purposes, whether you have made payment
in an appropriate medium of transaction.
One effect of the legal tender law is that it allows
debts and obligations to be discharged in a cheaper form of “dollars” than coins
made of gold and silver. Thus, it in effect enables floating fiat Federal
Reserve notes and deposits to be used in payment of “dollar” debts. If a
“dollar” was exclusively defined as a gold coin of a specific weight, then
floating fiat Federal Reserve notes would be useless, just bits of colored
paper. They could not be used in payment, any more than the “dollars” which
are included in the board game Monopoly.
It is doubtless true that the U.S. government suppresses
and blocks use of alternative currencies – especially those based on gold –
through various means. This could be through regulatory burdens, taxes, and
many other forms of harassment. They have to do it this way, because it is
not actually illegal to transact business in whatever form of “money” the
parties to the transaction agree upon.
Beginning in 1998, a private businessman, Bernard von
NotHaus, began to issue a warehouse receipt currency called “Liberty dollars”
based on gold and silver. In 2007, the Federal Bureau of Investigation raided
the vaults of the Liberty dollar, and confiscated $7 million of gold and
silver bullion. The seizure warrant was for money laundering, mail fraud,
wire fraud, counterfeiting, and conspiracy.
Note that none of these charges have anything to do with
“legal tender,” or any restrictions on people to transact in the currency of
their choice.
In 2009, von NotHaus was arrested and charged with: one count
of conspiracy to possess and sell coins in resemblance and similitude of
coins of a denomination higher than five cents, and silver coins in
resemblance of genuine coins of the United States in denominations of five
dollars and greater, in violation of 18 U.S.C. § 485, 18 U.S.C. § 486, and 18
U.S.C. § 371; one count of mail fraud in violation of 18 U.S.C. § 1341 and 18
U.S.C. § 2; one count of selling, and possessing with intent to defraud,
coins of resemblance and similitude of United States coins in denominations
of five cents and higher, in violation of 18 U.S.C. § 485 and 18 U.S.C. § 2;
and one count of uttering, passing, and attempting to utter and pass, silver
coins in resemblance of genuine U.S. coins in denominations of five dollars
or greater, in violation of 18 U.S.C. § 486 and 18 U.S.C. § 2.
Prosecutors actually argued in court that the 90% silver
Liberty dollar coins were a counterfeit of the common twenty-five cent piece.
The Associated Press reported: “Federal prosecutors successfully argued that
von NotHaus was, in fact, trying to pass off the silver coins as U.S.
currency. Coming in denominations of 5, 10, 20, and 50, the Liberty Dollars
also featured a dollar sign, the word ‘dollar’ and the motto ‘Trust in God,’
similar to the ‘In God We Trust’ that appears on U.S. coins.” A jury actually
found him guilty of the charges, which suggests the degree of influence
brought to bear upon the legal system to get the outcome that the prosecutors
desired.
Obviously, we have a de facto prohibition on any
gold- or silver-based currency that poses a significant challenge to the
dominance of the floating fiat Federal Reserve “dollar.” The government seems
to be terrified even of rinky-dink operations like the Liberty dollar. Just
as obviously, there is no actual legal prohibition on such, or there would be
no need to resort to laughable “counterfeiting” arguments. (You might also
conclude that Bitcoin is not considered a great enough challenge to bother
with.)
(This item originally appeared at Forbes.com on April 18,
2017.)
https://www.forbes.com/sites/nathanlewis/2017...m/#6ac67ec625da
