The concept of legal tender may seem innocuous at first, but it carries with it a curse that has deep and far-reaching implications. Legal tender refers to the official form of payment that must be accepted as payment for goods and services by law. While this system brings about convenience and stability in transactions, it also has its drawbacks. Perhaps the most significant issue with legal tender is its inherent monopoly. When a currency is designated as legal tender, it becomes the sole acceptable form of payment within a particular jurisdiction. This monopoly grants the government or central bank an undue amount of control over the economy, as they have the power to manipulate the value of the currency through policies such as quantitative easing or interest rate adjustments.
Blame the zinc lobby. Is there any industry that doesn’t have a lobby these days?
Even though the first US Congress authorized an American currency, foreign gold and silver coins were given legal tender status because the Philadelphia mint couldn t meet the currency demands of a growing nation. Any changes made can be done at any time and will become effective at the end of the trial period, allowing you to retain full access for 4 weeks, even if you downgrade or cancel.
This monopoly grants the government or central bank an undue amount of control over the economy, as they have the power to manipulate the value of the currency through policies such as quantitative easing or interest rate adjustments. This can lead to devaluation, inflation, and other economic distortions that can hurt businesses and individuals alike. Furthermore, legal tender limits individual freedom and privacy.
The Curse of Coins
An Asian restaurant near my place prices everything in odd-lot denominations, where it’s $7.36 for a chicken bowl and $1.84 for a drink. I thought the owners must be doing some weird mind trick to take advantage of customers who can’t do math, but when it came time to receive the bill, it turns out my total was exactly $10. After tax.
That is so brilliant. All the menu items were priced to come out as round numbers after accounting for sales tax. By removing the asspain of handling coins, customers are more inclined to pay with cash. I’m sure the restaurant owners are law-abiding citizens who dutifully report all their sales; cash transactions simply allow them to avoid a 3-5% card-processing fee. After all, nothing sends me reaching for a credit card faster than being rung up for a sum like $10.06. If I don’t have change, I’m trading a paper bill for nine irritating coins.
That said, pennies and nickels can’t be used to buy much anymore. They weigh down our pockets and accumulate between couch cushions. Sometimes people use them to deliberately irritate debt collectors. Maybe instead of railing against large-denomination bills, former IMF chief economists ought to do something useful for once and advocate the removal of small-denomination coins.
Here’s a secret: Pennies aren’t really money. Nickels aren’t either.
In 1792, the smallest silver coin was the half-dime. Copper cents and half cents were also minted, but those weren’t the bush-league pennies you see today. Copper cents were solid discs as big as a half-dollar. Half cents were the size of quarters.
2016 penny, 1849 copper cent, 1854 half-dime, 2016 nickel.
The copper cents were introduced as a way to bridge conversions between American dollars, English shillings, and Spanish eighths 1 . Even though the first US Congress authorized an American currency, foreign gold and silver coins were given legal tender status because the Philadelphia mint couldn’t meet the currency demands of a growing nation. When foreign currency was demonetized in 1857, large copper coins were discontinued and a small one-cent token was created to pay out the fractional parts of Spanish dollars 2 .
Nickel-clad coins came later. During the Civil War, Americans hoarded gold and silver due to economic hardship. The lack of silver led Congress to create five-cent tokens out of nickel as a substitute for silver half-dimes. The five-cent tokens were legal for payments of up to a dollar, and one-cent tokens were allowed for amounts up to ten cents.
Those tokens are the nickels and pennies we know today. Coins with intrinsic commodity value were made with reeding, or ridges around the sides, to prevent people from clipping precious metal off the edges. Tokens have smooth edges, because there’s nothing worth clipping off a piece of base metal. Today it doesn’t really matter; all coins are effectively tokens even though quarters, dimes, and half-dollars still have reeded edges.
We’re well past the era of needing tokens as placeholder currency. Canada, Australia, and Brazil have all done away with their one-cent coins. Hong Kong, New Zealand, and Mexico eliminated anything smaller than a ten-cent piece. Why is the United States still holding onto its most worthless tokens?
Blame the zinc lobby. Is there any industry that doesn’t have a lobby these days?
Today’s pennies are made of zinc, and lobbying efforts are funded by Jarden Zinc Products, a zinc producer that makes coin blanks for new pennies. Their front group, Americans for Common Cents, argues that the elimination of small change will create a regressive tax on consumers, as everything priced at 99 cents must be rounded up to a dollar. They claim the missing cents will add up to hundreds of millions of dollars a year, and you shall not crucify mankind upon a cross of nickel-clad metal alloy, or something to that effect.
It turns out we’ve had this discussion before. The last time people agonized over rounding errors was during the Great Depression, when the application of sales tax often resulted in fractional totals. Merchants and many state governments responded by issuing sales tax tokens to account for partial pennies, so consumers would not feel robbed. If the country ends up in permanent economic fallout as some economists predict, grocery stores can go back to distributing S&H Greenstamps and everything will be fine.
One-thousandth of a dollar.
Money was created to reduce the amount of work required for economic transactions. Tokens can provide finer granularity for price representation, which lowers transaction costs. But the goal of any currency structure is to require as few denominations as possible to represent all desirable values. When unnecessary tokens are used, it burdens the market with the extra effort of carrying and counting cash.
In theory, market forces would take small change out of circulation if consumers stopped demanding them. Unfortunately, the persistence of sales tax all but guarantees that stores have to keep handing them out. If we round all transactions to the nearest tenth, the Mint can finally stop distributing nickels and pennies, and the coins will gradually fall to disuse. Any remaining stragglers can be thrown into a wishing well or retired for good.
1. Spanish silver dollars were divided into pieces of eight, each worth 12.5 cents. Because trade was often conducted using Spanish dollars, equities were priced in 1/8-dollar denominations on US stock exchanges until 1997.
2. The country had acquired sufficient silver to replace foreign coins, so The Coinage Act of 1857 was passed to demonetize all foreign currency and create a small cent.
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By mandating the use of a specific currency, governments effectively force individuals to use their chosen medium of exchange. This restricts the ability of individuals to engage in alternative forms of trade or use alternative currencies that may better suit their needs. It also enables governments to monitor and control financial transactions, potentially infringing on personal privacy. Additionally, legal tender stifles competition and innovation in the monetary system. By mandating the use of a specific currency, governments effectively eliminate any incentive for alternative forms of money to emerge. This restricts the ability of individuals and businesses to experiment with new ways of conducting transactions or to explore alternative monetary systems that may be more efficient, secure, or suited to their specific needs. In a rapidly changing and interconnected world, this lack of flexibility can hinder economic growth and progress. In conclusion, while legal tender may serve a purpose in facilitating transactions and providing a stable medium of exchange, it also comes with a curse. The monopoly, restricted freedom, and lack of competition inherent in legal tender can have detrimental effects on economies, inhibit individual freedom and privacy, and impede innovation. It is crucial to consider the drawbacks of legal tender and explore alternatives that could promote a more flexible, inclusive, and innovative monetary system..
Reviews for "The Role of Legal Tender in International Trade: Challenges and Solutions"
- John - 2/5 stars - I found "The Curse of Legal Tender" to be quite disappointing. The plot seemed intriguing at first, but it quickly became convoluted and confusing. The characters were underdeveloped and lacked depth, making it difficult to emotionally invest in their journeys. Additionally, the pacing was inconsistent, with some scenes dragging on unnecessarily while others felt rushed. Overall, I was left unsatisfied and would not recommend this book to others.
- Emily - 1/5 stars - "The Curse of Legal Tender" was a complete letdown. The writing style was incredibly dry and lacked any kind of engagement. The dialogue felt forced and unnatural, making it impossible to connect with the characters. Even the supposedly exciting moments came across as bland and boring. I struggled to finish this book and was relieved when it was finally over. Save yourself the time and skip this one.
- Mike - 2/5 stars - I had high hopes for "The Curse of Legal Tender," but unfortunately, it fell flat for me. The storyline had potential, but the execution lacked creativity and originality. It felt like a mash-up of clichés and predictable plot twists. The author failed to create a believable and immersive world, leaving me detached from the story. The ending was disappointing and left many loose ends unresolved. Overall, I was not impressed and would not recommend this book.