The precise reason for a money order limit typically depends on the business or agency responsible for issuing the money order. In many places, including the US, there is not a strict legal reason for a limitation. If a business wishes to issue money orders of hundreds of thousands of dollars, they likely could do so. This is not typically done, however, since a money order limit is often set to try to prevent fraudulent money order claims in very high amounts.
Fraud is one of the biggest reasons a business will usually set a money order limit. Over the past few decades, forgery of money orders and changing names on money orders has become an increasingly pervasive issue. Since a money order is paid in cash at the time of purchase, there is little a person can do to deal with fraudulent claiming of a money order. To reduce the damage done to businesses by fraudulent money orders, a money order limit is usually set.
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Since the money order limit is set by the business or agency that issues money orders, the limit is likely to vary by location. This can be a regional standard of value, or a particular business may set a limit that is observed at various locations for that business. The lowest limitation for a money order will typically be $100 US Dollars (USD), since anything below that is simply impractical. Many places will set a money order limit to $500 USD, which is still fairly high but not high enough to cause serious problems.
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The United States Postal Service (USPS), one of the leading issuers of money orders, has set a money order limit of $1,000 USD for domestic money orders, as of 2010. For international money orders, the limit is set to $700 USD. Of course, these limits are only set to individual money orders and multiple money orders can be purchased at once, though a government-issued photo ID is required for purchasing over $3,000 USD in money orders in a single day.
One thing to consider, with regard to how a money order limit is set, is what businesses are willing to cash money orders. Just because a business will issue a money order, does not necessarily mean it will also cash a money order or not limit how many money orders it will cash. For cashing a money order, it is often easiest to use a USPS location, especially if the money order was issued by the Postal Service. Many banks will not cash a money order, due to issues with fraud and fake money orders being processed by banks in the past.