Legal tender is a term that officially refers to specific payment options that are tendered — or offered — to fulfill a debt and which must be accepted by the lender. In the United States, as established by the Coinage Act of 1965 in Section 31 U.S.C. 5103, the coins, bills and notes that make up US currency are defined as legal tender. The term currency not only includes the more familiar bills with the images of the early presidents, but also rarely encountered types of currency such as Federal Reserve notes and United States notes. Foreign money in the form of currency or coins is not considered to be legal tender in the US. Thus, common forms of legally valid tender familiar to most US citizens include bills and coins.
Despite a national law determining the specific definition of legal tender, there is no federal law expressly requiring a business, organization or lender to accept any type of commonly encountered legal tender. Those organizations that only accept currency as payment are much less common today than they were even a few decades ago. In fact, most modern payment of debt utilizes checks, money order, credit cards and debit cards in place of legal tender for documentation of payments and convenience. Even newer changes to our payment methods such as electronic funds transfer (EFT) or payment through companies that first began as large online retailers are now common means of discharging one's debt. In fact, US government tax refund, retirement and disability checks will soon be available only by an EFT deposit.
Other common business restrictions hamper the notion of a legal tender that must be accepted or cannot be refused. The most common example cited involves buses refusing payment except by coin or retail establishments that refuse to accept currency over a certain amount, such as convenience stores refusing to accept currency bills over $20.00 (USD). Whether such policies are established for the sake of convenience, ease of business, concerns regarding counterfeit bills or safety issues, they have repeatedly been upheld by the courts when challenged.
Although the use of currency is decreasing, paper money still has an allure that digits on a computer screen or a credit card payment statement lack. Paper currency commonly encountered includes $1.00, $5.00, $10.00 and $20.00 (USD) bills. $50.00 (USD) are rarely encountered but fondly remembered. The highest denomination of currency that remains in circulation is the $100.00 (USD) bill. Higher denomination bills are either in the hands of collectors or are retired and destroyed when they are returned to the Treasury system.