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What is "Legal Tender"?
According to the U.S. Bureau of Printing and Engraving, and title 31 USC 5103, Legal Tender is defined as:
"Legal Tender 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."
So basically it’s all US currency that was issued by the federal government. And yet, “Legal Tender” didn’t always have the all inclusive meaning that it has today. There was a time that, depending on what type of money you had (and what it as backed by), you (officially) couldn’t make certain types of payments with it. Below are several types of currency that were in use during the 20th century, and their redemption and obligation clauses spelled out directly on the notes.
United States Notes a.k.a. Legal Tender Note
Characterized primarily by their red treasury seals and red serial numbers, these notes are also referred to as Legal Tender Notes, a reference to the obligation clause found on these notes. Legal U.S. Notes are among the oldest types of circulating U.S. banknotes and were introduced during the Civil War, in 1862. These were direct obligations of the Treasury, and thus were actual pieces of the national debt.
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Red seal from 1923 large sized note Red Seal from 1928 small sized note
According to their obligation clause and their redemption clause, these notes had the following statements to make about their use:
1862 (1): “This note is a legal tender for all debts, public and private, except duties on imports and interest on the public debt, and is exchangeable for U.S. six percent twenty year bonds, redeemable at the pleasure of the United States after five years”
1862 (2): “This note is a legal tender for all debts, public and private, except duties on imports and interest on the public debt and is receivable in payment of all loans made to the United States”.
“From 1863 through 1928: “This note is a legal tender for all debts, public and private, except duties on imports and interest on the public debt”.
1928: While 1928 series notes started out with the above clause, the series was changed in 1933 to read as follows: “This note is a legal tender for all debts, public and private”.
1963: The single letter word “A” was dropped and the clause read “This note is legal tender for all debts, public and private”.
So, great. But what do these obligations mean? Well, remember that these notes were actual U. S. debt issued by the US Treasury. Therefore, at certain times, restrictions on their use were deemed necessary to avoid the treasury to default. Acceptance of U. S. notes issued by the treasury for interest on its debt (which includes these notes) would be silly. They wanted notes which were backed by other banks or government agencies, like the Federal Reserve.
Silver Certificates
Characterized primarily by their blue treasury seals and blue serial numbers, these notes were issued by the U. S. Treasury, but they were backed by holdings in silver, either coin or bullion, and were redeemable for silver at the Treasury. Production of Silver Certificates began in 1878 and stopped in 1963, with a deadline of June 24, 1968 imposed for redemption.
Silver Certificate Blue seal from 1923 Silver Certificate Blue seal from 1935
From 1886 until 1934, the Silver Certificates obligation read:
“This certifies that there have been deposited in the Treasury of the United States (#) silver dollars payable to the bearer on demand.” Over the treasury seal, it read: ”This certificate is receivable for customs, taxes, and all public dues and when so received may be reissued”.
1934: “This certifies that there have been deposited in the Treasury of the United States (#) dollar(s) in silver payable to the bearer on demand.” Over the treasury seal, it read: “This certificate is legal tender for all debts public and private”.
Silver backed notes were one method of ensuring that the nation would not run too much of a deficit, as there had to be a minimum amount of silver in the bank’s reserve for the number of notes issued.
Silver certificates were accepted as payment on all types of debt, dues, etc. because it was considered safe. It wasn’t an actual part of the debt, and a portion of it was held in reserve at the treasury.
Gold Certificates
Issued from 1863 through 1933 (series 1928), Gold certificates were issued by the U. S. Treasury, but backed by holdings in gold, either coin or bullion, and were redeemable for silver at the Treasury. Due to the Gold Reserve Act of 1933, gold, and these Gold Certificates were actually illegal to possess by the public until 1964 when the restriction on possession/ownership (but not redemption) was lifted. The larger sized notes had gold-orange treasury seals and serial numbers and were printed in orange color on the back. With the redesign of notes in 1928, these notes had only the treasury seal and the serial numbers printed in gold-orange color.
Gold Certificate Seal from 1922 Gold Certificate seal From 1928
The obligation on large notes read: “This certifies that there have been deposited in the Treasury of the United States (#) dollar(s) in gold coin payable to the bearer on demand.” Over the treasury seal, it read: "This certificate is a legal tender in the amount thereof in payment of all debts and dues Public and private. Acts of March 14, 1900, as amended and December 24, 1919."
On the small notes, the obligation read: “This certifies that there have been deposited in the Treasury of the United States (#) dollar(s) in gold coin payable to the bearer on demand.” Over the treasury seal it read: “This certificate is a legal tender in the amount thereof in payment of all debts and dues, public and private.”
As with silver certificates, gold certificates were one method of ensuring that the nation would not run too much of a deficit, as there had to be a minimum amount of gold in the bank’s reserve for the number of notes issued, and as such, these certificates were accepted for all types of payment.
An exception to the gold treasury seal was the silver certificate issued in North Africa for U. S. military personnel use during WWII.
Silver Certificate from 1935
issued in WWII for use in North Africa
National Banknotes
Notes issued with brown seals and serial numbers are usually National Banknotes. National Banknotes were first brought about in 1863 when the National Currency Act authorized banks with $50,000 in capital to become a 'National Bank'. In addition, a safeguard to stop the banks from going broke was instituted; they had to deposit one-third of their assets in bonds with the US Treasury. Once done, the banks then could issue National Currency with their banks name on it as well as the city and state that branch was in. When the US decided to create smaller currency, the National Banknotes adopted the brown seal and serial number scheme and followed a standard design to fall into a more cohesive look for US Currency. Four signatures are on National Banknotes. The top two are the Register of the Treasury and the Secretary of the Treasury, and the bottom two is the local Bank Officers signatures. The obligations of these notes read as follows:
Brown Seal from a 1929 National Banknote
1875: “This note is secured by bonds of the United States deposited with the U.S. Treasurer in Washington. The (name, city and state of the issuing bank) will pay the bearer on demand (#) dollars.” On the reverse is: “This note is receivable at par in all parts of the United States, except duties on imports, and also for all salaries and other debts and demands owing by the United States to individuals, corporations and associations within the United States except interest on the public debt.”
1929: “National Currency secured by United States bonds deposited with the Treasurer of the United States of America (name, city and state of the issuing bank) will pay to the bearer on demand (#) dollars.” Over the treasury seal, it read: “Redeemable in lawful money of the United States at United States Treasury or at the bank of issue”.
An exception to the brown seal and serial number is the Silver Certificates issued for use in Hawaii during WWII.
Silver Certificate from 1935
issued in WWII for use in Hawaii
Federal Reserve Notes
Our modern green treasury seals and green serial numbers were first issued in 1914, and is the only type of U. S. Currency being printed today. The large sized notes originally had red seals, but they quickly switched to blue, the same color as Silver Certificates. When the currency was redesigned in 1928, the characteristic green seals and serial numbers we are used to seeing today were adopted. The obligation clauses read as follows:
Federal Reserve seal issued in 1914 Federal Reserve seal issued in 1996
1914: “This note is receivable by all National and member banks and Federal Reserve Banks and for all taxes, customs and public dues. It is redeemable in gold on demand at the Treasury Department of the United States in the city of Washington, District of Columbia, or in gold or lawful money at any Federal Reserve Bank.” The obligation states that: “The United States of America will pay to the bearer on demand (#) dollars.”
1928: “Will pay to the bearer on demand (#) dollars.” Over the Treasury seal, it read: “Redeemable in gold on demand at the United States Treasury, or in gold or lawful money at any Federal Reserve Bank.”
1934: “Will pay to the bearer on demand (#) dollars.” Over the Treasury seal, it read: “This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury, or at any Federal Reserve Bank.”
1963: “Will pay to the bearer on demand (#) dollars.” Over the Treasury seal, it reads: “This note is legal tender for all debts, public and private.”
You may have noticed that the Federal Reserve Notes are not backed by silver or gold, nor are they obligations of the Federal Reserve, or any of its 12 regional banks. Federal Reserve Notes are an obligation of the United States of America, much like the United States Notes were. In fact, it was this similarity which eventually resulted in the demise of the United States Notes, as there was no need for duplicate notes to be issued that were obligations of the same organization. When a note is not backed by anything, nor insured by banks holdings, it is known as “fiat” money – meaning that the government simply decrees it to be legal tender.
Federal Reserve Bank Notes
FRBN’s, also called National Currency (do not confuse with National Banknotes), a subtype of the Nationals, Federal Reserve Bank Notes were issued by Federal Reserve Banks, but unlike ordinary Federal Reserve Notes, they were direct obligations of the Federal Reserve banks which issued them, not the U.S. government. So, for example, a note issued by the Chicago FRB was responsible for the backing of the note, and not the bank in San Francisco, Richmond, or any other of the 12 district banks. This helped to divvy up the debt responsibility between the banks and the Federal Reserve as a whole. These notes have the words “National Currency” on them as do the National Banknotes, which can cause easy confusion to a casual observer.
FRBN Brown seal issued in 1933 on a 1929 National Note
A shortage of banknotes in 1933 occurred when Federal Reserve Notes were withdrawn from banks. This left a shortage, and FRBN’s were issued then issued. These notes were issued on a stock of banknotes originally intended for National Banknotes, but due to the immediate need, these were issued with the Federal Reserve banks stamped on them instead of the locally issued National Bank’s names. In additions, the letters corresponding to the number of the Federal Reserve Bank issuing the note is also stamped in bold on the face of these notes.
1918: "This note is receivable in all parts of the United States in payments of all taxes and excises and all other duties to the United States except duties on imports and also for all salaries and other debts and demands owing by the United States to individuals corporations and associations within the United States except interest on the public debt.”
So what's limited with the 1918 FRBN / National Currency is that it Can Not be used to pay for duties on imports, money owed by the government to US Individuals, corporations and associations, and then a strange, likely unintended, double negative in the last six words: except interest on the public debt. I believe the last "Except" should have been "and" but this is only a guess.
That is, unless there’s missing punctuation somewhere.
If, instead of being a grammatical mess, it employed at least some punctuation, it removes the double negatives. I think it likely means this:
1918: "This note is receivable in all parts of the United States in payments of all taxes and excises and all other duties to the United States, except duties on imports, and also for all salaries and other debts and demands owing by the United States to individuals corporations and associations within the United States, except interest on the public debt.”
The 1918 Federal Reserve Bank Note (FRBN) redemption clause
1929 (1933): “National Currency secured by United States bonds deposited with the Treasurer of the United States of America (name, city and state of the issuing bank) will pay to the bearer on demand (#) dollars.” Over the treasury seal, it read: “Redeemable in lawful money of the United States at United States Treasury or at the bank of issue”.
Finally, for those who like to ponder these things, take the following US One Dollar Bills into consideration:
Series 1899 Silver Certificates.
Series 1923 Silver Certificates.
Series 1917 United States Notes.
Series 1923 United States Notes.
Series 1918 Federal Reserve Bank Notes.
These notes were all in circulation at the same time. While it was probably not too very likely that a person would be walking around with five dollars in his wallet, one of each type, it very well could have happened. Why? Because the 1899 Silver Certificate wasn’t replaced until 1923, when they mingled together. Then, the 1917 U. S. Note was replaced in 1923 and they also were both around for a time. The 1918 Note was also out there, making its own way around the country. All would have been actively circulating at the same time, much like we have today with 5, 10, 20 and 50 dollar bills today.
That’s a lot of different designs that grandma and grandpa had to deal with. These are some very different designs, and all of them have some elements that evoke the things that we like in (or on) our money. History, Statesmen, Americana Art, Old Time-y Scrollwork, etc., that give us the feelings of pride, unity, patriotism, etc., that we all hold dear to ourselves.
The fact that you couldn’t pay customs and taxes, or interest on public debt was an issue, but it wasn’t as large an issue as it may at first seem. Money was readily accepted and could be exchanged at another bank, or redeemed in gold, silver, or lawful money, which could them be paid. Remember that all these notes were worth exactly the same, regardless of their funding or backing, and were effectively legal tender in most places, with exception at only a few. These limitations, however necessary for their funding sources, proved to be too tight and we wound up with only the Federal Reserve Notes we have today.
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